Borrowers 5 - Savers 1

Further to my light hearted post about the budget the other day, today I thought I would give a more serious view. After five years of emergency low interest rates to bail out borrowers and various schemes to encourage banks to lend more and help to buy etc etc. we finally got a sop to savers and prospective pensioners in this budget. Ah yes there is an election coming up and the older voters are more likely to vote and they realised they might be a bit angry about being punished for being prudent for the last five years.

Any way I was pleasantly surprised to see the New ISA or NISA with a combined £15,000 allowance and more flexibility, especially as there had been rumours of life time allowance type caps as with Pensions. So we'll look forward to being able to shelter an extra £6960 compared to this years allowances. I was surprised to see on the BBC news that many still seem confused about or oblivious to the benefits of ISA's with more than half of the UK's 30 million taxpayers not using the Isa option last year, with some confused about the deals and many I suspect many are unable to save anything anyway. Also given the low interest rates discussed above and the inflation which the Bank of England has chosen to ignore its not that surprising that people have probably thought what's the point in saving - might as well spend it.

For those that do save ISA's should really be your first port of call given their flexibility (now enhanced in the budget) and obviously I would advocate stocks and shares ISA's being an equity man. To illustrate this from the BBC article above they point out that for every 15 years of the ISA's existence, anyone who had put the maximum allowance into a stocks and shares account - taking the average UK Equity and All Companies funds as examples - would currently have a pot of money worth more than £214,000 and £218,000 respectively. That is almost £100,000 of tax-free gains. Using the annual maximum allowance in a cash ISA would have bought a total pot of more than £76,000 and earned more than £20,500 in tax-free interest. 

Of course picking your own shares you might have done much better or worse than these figures depending on your luck or skill. If you have not done that yet and want to take the plunge for the current tax here is a useful table from Money Week comparing the various providers of ISA's and SIPP's. Of these I web share dealing and X-O seem the best value for ISA's. I have used X-O as a dealing account and they seem OK and are part of Jarvis Securities (JIM) if you want to check them out - wish I'd bought their shares a few years ago when I first checked them out before opening the dealing account!

On the Pension reforms, while it seems jolly decent of them to allow people to access their pension pots if they want rather than be forced to buy an annuity, I am a bit suspicious of the motives. I note from reports that the treasury expect this to bring in extra revenue in the early years as people are expected to access their pots early and therefore pay more tax up front rather than over their remaining lifetime. Call me cynical but I suspect the thinking is that they can rely on the great British public to spend, spend, spend and maybe even buy another house to let out to keep the VAT and stamp duty revenues flowing. This will then mean they will have to keep working even longer and paying more tax for longer still - a win win - for the treasury. Hey ho - death and taxes the only certainties in life, but at least ISA's help you to avoid some tax along the way.