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New ISAs (NISAs) and proposed pension reforms - are we being treated like adults with our own money at last, or it is style over substance to grab headlines?

11/07/2014 13:56 BST | Updated 09/09/2014 10:59 BST

George Osborne introduced the measures on March 19th saying: "We want to support savers at all stages of their life and make sure they have greater flexibility and choice over how they access their savings... reforming ISAs and giving people flexibility over their pensions ..."

The 2014 Budget took many by surprise with the introduction of these super savings accounts that seem to offer flexibility with increased investment limits. What is there to dislike about them? The positive headlines that followed the Budget announcement have dimmed somewhat now that we understand the reality of the minimal financial returns they offer and of continuing cuts in rates. What is the point of encouraging people to invest up to £15,000 a year (note the term "invest") when diminishing returns of interest are the reward? There is also concern that NISA providers are not geared up to deal with the other key feature, flexibility.

From 1 July it has been possible to invest up to £15,000 in any combination of cash of stocks and shares - and to be able to switch between the two. Additionally, it is possible to transfer between providers as often as desired. This flexibility is to be welcomed. However, there is concern that savers with existing ISAs who may want to transfer them into NISAs may lose out on interest (however poor) as the automated ISA switching service is not currently used by all. It could take several weeks, even months, to make transfers between some providers. Other concerns are that some providers are only permitting partial transfers, and many have not provided information to their investors about the new rules and opportunities to top up. Observations that the changes were introduced too quickly for the industry to update its internal processes are being denied but evidence seems to suggest otherwise.

Similarly, the proposed pension reforms that allow savers the ability to take all their pension pot in one lump sum seem sensible enough. Headlines about the potential for people to squander their pension pots if the proposals are enacted have divided the nation into those who believe that people should do what they like with their own money, and those who believe that some guidance is necessary or the State will be left to pick up the pieces.

As with the NISA, freedom of choice and flexibility are to be welcomed. Individuals who have been able to save for their retirement should be savvy enough to realise that taking out their entire pension pot is likely to have tax consequences. Whilst the ability to take a tax free portion will remain, adding it to other income it is likely to generate a tax liability. Thus, taking the whole amount out may not be as attractive as first thought.

All individuals need to make provision for later life or that "rainy day". While ISAs easy to understand and over half the UK adult population has one, pensions have been receiving a bad press, with gradually reducing annual and lifetime allowances, heavy administration fees and the annuity issue.

The issue is that, at the point at which the current generation of workers will retire, £1.25m (the current lifetime pension cap) will not be enough to retire on. Plus for many, such as entrepreneurs who will often spend their time well into their mid-40s building a business with little free cash available for pension contributions, by the time they can afford to properly invest into their pensions, they can only put £40k a year into the pot.

It is more than coincidence that the ISA limit increased at the same time as the pension annual allowance reduced. Rather than simply removing higher rate tax relief for pension contributions, they have gone even further and removed all relief by effectively forcing people to switch their pension contributions to alternatives such as NISAs. People cannot any longer base their retirement planning on pensions alone, but need to consider their investments much more widely in order to provide for later life. NISAs provide a tax-free wrapper, but outside the £15,000 a year investment limit, other investment vehicles are likely to be taxed on returns generated.

Of course, the Chancellor does not have a pot of cash to share with a grateful nation - it is likely that, over time, these changes will raise revenue or at least save the government money by reducing the amount of support the State would otherwise have to give to an ageing population. So whilst the changes are positive overall and make it easier for people to save and access their own money, there is an ulterior motive.

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