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10 insights into Osborne's Autumn statement
by Wealth Manager Team on Dec 06, 2012 at 07:00
The Wealth Manager team's inboxes were bulging yesterday as the industry reacted to George Osborne's Autumn Statement. We cherry-pick 10 views which caught our eye.
Nancy Curtin: Close Brothers chief investment officer
Faced with falling UK growth forecasts and with the imminent threat of the UK losing its AAA status, the City needed definitive action from the chancellor to stimulate growth as it becomes clear that austerity alone will not set us on the path to economic recovery. Did he listen? Well inevitably there was a lot of window dressing, but buried deep among the platitudes there were a few hidden gems.
Reducing the corporate rate of tax to 21% in 2014 may prove a significant step towards encouraging corporates to remain headquartered on UK shores; earmarking £5 billion in infrastructure projects (with the promise of up to £40 billion to come) should go some way to stimulating the economy, particularly in the beleaguered regions and paving the way for investment in shale gas is certainly an economic positive – albeit with strings attached as the current ban on fracking would have to be lifted to realise this potential. Is this the start of something bigger? with austerity measures now officially extended to 2017, it might need to be.
Tony Vine-Lott: TISA director general
We are particularly pleased that thee is to be a consultation on AIM shares and ISAs. It has always seemed to us to be inequitable for these investments to be excluded from a Stocks & Shares ISA and we have made constant representations to have this changed. We therefore fully support the proposal.
It is also good to have the increase to ISA subscription levels in line with the Consumer Prices Index confirmed. For the first time the increase is being extended to JISAs and CTFs and will provide a welcome boost to children’s savings. The ISA model is a huge success and we must do all we can to build on its popularity to encourage people to save in order to better afford their short and longer term financial needs.
In April 2011 ISA limits were increased by index linking for the first time. The increase is rounded to the nearest multiple of 120 to enable individuals to calculate their monthly savings more easily.
Susan McDonald: Calculus Capital chairman
Three years ago you could shelter £255,000 a year in a pension and up to £1.8 million in total over your lifetime. From 2014 it will only be £40,000 a year and £1.25 million over a person’s lifetime . Enterprise Investment Scheme funds are arguably now more attractive than pensions for many investors; with 30% income tax relief, no CGT, up to 65% loss relief underwritten by government, no IHT plus individuals can invest up to £1 million each year.
Unlike pensions, EIS investors can also be reasonably confident that the EIS regime has strong government support. This is because the government sees EIS funding as vital in raising investment capital for the small and medium-sized British businesses that can lead the country out of its economic malaise.
The [pension] cut may upset many investors but it should be good for the UK economy as it will drive money towards entrepreneurial businesses that are still struggling to raise investment capital from banks. It could be good for investors too. In over a decade of managing investments in this sector I’ve never seen better opportunities. Good quality companies are crying out for funding to help them grow and the terms we are being offered are attractive.
Ray Chinn: LV= head of pensions
Our State of Retirement report published in May this year found 48% of over 50s believe improved tax breaks on pensions and savings would encourage people to save. It is therefore disappointing the government has decided to lower the annual allowance twice in as many years. We’re concerned that it sends the wrong message not only to those who are currently saving for their retirement, but those who should be.
The number of over-50s planning to work past state retirement age has risen by 43% since 2010, with many saying it is due to affordability. These proposed changes risk further alienating people from the need to plan for retirement and could result in more people struggling to fund their retirement.
This is particularly the case for those who are more able to make larger pension contributions later in life when other financial commitments have reduced – the reduction in annual allowance will hit these individuals hardest.
The changes to the drawdown limit is good news, especially for those customers who have been badly hit by previous reductions. However, we would still advise caution, and urge people take advice around the sustainability of income levels in drawdown, and to look at the wide spectrum of products available in the retirement income space.
Oliver Hemsley: Numis chief executive
We are disappointed that there are not more measures in the chancellor’s Statement to stimulate investment in UK small and mid-cap companies, the growth engines of the economy. However we welcome the announcement of a government consultation on allowing direct investment in AIM shares within ISAs and we will continue to push for changes which facilitate access to capital for UK small and mid-cap companies.
Numis [yesterday] announced the results of research undertaken jointly with London Stock Exchange Group (LSEG) on the attitudes to financing and investment among the constituents of the Numis Smaller Companies Index (NSCI), the definitive benchmark for monitoring the performance of UK small and mid-sized companies.
Of those surveyed, 97% of respondents believe access to capital is critical for economic growth and over 80% of respondents agreed that the government should encourage retail investment in small and mid-cap companies. When asked about sources of financing, public equity has been a key source for small and mid-cap companies in the past 12 months – reflecting the difficulty of obtaining bank finance.
Tony Stenning, BlackRock head of UK Retail
Despite the government’s changes to pension tax relief in the Autumn Statement today, Britons should not be put off saving for retirement.
There is a clear ‘myth versus reality’ about pensions in the UK, with only one in three of Britons not saving for their retirement despite 47% of them expecting to retire by 65. Britons need to be educated on the importance of saving regularly and as early as possible in their working life, as we look to build a savings culture which helps people to plan ahead for their retirement – they need to build what they need tomorrow, but can’t wait until tomorrow to begin.
Joanne Segars: NAPF chief executive
The government will take twice as much from this tax hit on pensions as it will from the increase in the bank levy. That cannot be fair, and will only undermine confidence in pension saving.
The chancellor is wrong to say that the changes will only affect those at the top of the wage tree. Osborne claims he is taking a carrot away from the rich, but he is also beating many middle class savers with a stick. Middle managers in the public and private sectors will get caught in the net.
People in a final salary pension who have worked loyally for the same employer for years and then get a pay rise, or a promotion, could end up with a tax bill of several thousand pounds. This is a charge just for saving into a pension. The self-employed and those nearing retirement desperately trying to ‘catch up’ by boosting their pension are also at risk.
What we desperately need is stability, so that people can trust the pensions system and get on with saving for their old age, instead of being treated like a cashpoint when things go wrong. This raid also adds an extra layer of admin and cost for the businesses trying to run final salary pensions.
The government is unpicking the benefits of saving into a pension at the same time as it is putting several million people into one. Yet again, workers will see the goal-posts being moved and wonder why they should bother. These are difficult economic times, but the government needs to do much more to encourage people to have faith in saving, and to strengthen workplace pensions.
Paul Sweeting: JP Morgan European head of strategy
The number of people affected might be small, but there is a bigger issue here – if there are doubts over the future tax treatment of pensions, people at all income levels might be less willing to save into pensions vehicles.
However, retirement is about more than just pensions. Other tax-favoured vehicles such as ISAs have an important role to play in providing retirement income. It is important that individuals are aware of this, and plan for retirement using the full range of investment vehicles available.
Jonathan Lipkin: IMA associate director, pensions and research
In the current economic environment, it is understandable that the cost of pensions tax relief is attracting a great degree of political scrutiny. However, piecemeal changes will do little to build confidence in the consistency and durability of the UK pensions and long-term savings regime.
Instead, we urge the government to examine the operation of this regime as a whole, and to ensure that the system of tax incentives operates in a way that is simple, predictable and encourages the government’s broader savings goals.
Chris Sanger: Ernst & Young head of tax policy
Upon coming to power, the Coalition government abolished the need for the government to produce a Pre-Budget Report, replacing this mini-Budget with an economic statement called the Autumn Statement, arguing that policy needs longer in gestation.
In contrast, today’s Statement, to be followed by draft legislation the next week, was far less of an economic statement, not even a mini-Budget. So now it seems we should expect Budgets every six months.