On 16 March, the chancellor made his Budget statement to parliament, setting out the tax and spending landscape for the coming year.
On 16 March, the chancellor made his Budget statement to parliament, setting out the tax and spending landscape for the coming year. There were a number of policy announcements that will be of interest to actuaries and that will have some impact on the direction of the IFoA's ongoing policy and public affairs work.
- Sugar tax - soft drinks firms will pay a levy on drinks with added sugar from April 2018.
- Maths to 18 - Professor Sir Adrian Smith, former Royal Statistical Society president, has been asked to assess the feasibility of teaching all pupils maths until age 18.
- Insurance premium tax - the standard rate will rise from 9.5% to 10%. This will help to pay for new flood defences and maintenance of existing flood defences.
- Lifetime version of the individual savings account (ISA) - perhaps the most pressing of the chancellor's announcements for the actuarial profession was the introduction of the Lifetime ISA (LISA). From April 2017, any adult under 40 will be able to open a new LISA, in which they can save up to £4,000 a year. Savers will receive a 25% bonus from the government on any investments, which can be used to buy a first home or fund retirement (if withdrawn after the age of 60).
In light of this announcement, the Work and Pensions Select Committee has re-opened its auto-enrolment inquiry, taking new evidence on LISAs. The IFoA's Pensions Board has submitted a response, discussing:
- The potential winners and losers from saving in LISAs, compared with traditional pensions
- How this new savings vehicle might sit alongside the successful rollout of auto-enrolment (AE) to date.
The inquiry, and the IFoA's response, looks at which groups in society could potentially benefit from an alternative form of saving for retirement, such as the self-employed and low-earners. We have also looked at the impact of the LISA on different rate taxpayers, both during their working lives and in retirement.
Some of our members have analysed the two savings vehicles and concluded that the LISA does offer a tax incentive for saving. However the tax treatment of the employer contribution is a real advantage of AE and an important component of retirement saving. It is therefore important that the introduction of the LISA, whilst a positive for some, does not undermine AE.
In our inquiry response, we stress that it is important for people to weigh up the pros and cons of both savings vehicles dependent on their individual circumstances and that the risks of both are understood.
The IFoA, along with a number of other interested parties, has noted concerns that the LISA could be used as a stepping stone to a more comprehensive pensions ISA model. This could also lead to a comprehensive change to the pension tax framework, something that was discussed widely prior to the Budget. We have asked government to provide clarity on this point in order to curb some of the uncertainty generated by continual tinkering to the existing pensions framework.
Read the inquiry responses: