Ten things the Budget did for savers

We know taxes are going up and government spending is going down, but what did chancellor George Osborne’s emergency Budget do for savers?

Despite the fearsome media build up it turned out to have some good parts mixed with the bad.  

Here are the ten things you need to know about changes to pensions, ISAs and capital gains tax.

1) Personal allowance raised for low earners

Osborne lifted 880,000 low earners out of taxation by raising the individual personal allowance by £1,000 to £7,475. A further 23 million basic rate tax payers people will benefit by up to £200. But higher rate tax payers will not gain as the band of income chargeable to basic rate tax will be reduced.

2) Basic state pension goes up ...

At £97.65 a week the UK’s basic state pension is one of the lowest among developed countries. After years of parsimony the government has agreed to ‘triple lock’ the state pension which from next year will increase by the higher of consumer price inflation, earnings or 2.5%.

3) But we won’t get it until later

The Budget may have been a bit softer than expected  but inevitably what the government giveth with one hand it taketh away twice over with the other. Offsetting the paltry increase in the basic state pension was news that the coalition wanted to ‘reinvigorate’ retirement – by getting us to work longer.

I didn’t understand that use of the word ‘reinvigorate’ either but there is no denying the fact that as we are generally living longer we should retire later too. Under consideration is a proposal for the state retirement age to rise every five years. This would see everyone retiring at 70 in 25 years compared to ages 60 and 65 for women and men today. This would be an acceleration of plans to raise women's state pension age to 65 by 2020 and to 68 for men and women by 2046.

If that sounds harsh, bear in mind that when the first contributory pension was introduced in 1926 the average life expectancy of men was 76. Today men are expected to live until 86. For women, life expectancy has risen from age 78 in 1926 to 89 today.

The government is also looking at scrapping the default retirement age which allows employers to force workers to retire at 75.

4) Public sector pension pain

Most of us need to save a lot more for our retirement. Workers in the private sector generally have to take responsibility for their own pension savings.  Those who do get some help from employers have seen that contribution drop during the recession. By contrast many public sector workers continue to benefit from taxpayer funded pensions into which they do not have to pay a penny. With liabilities thought to be nearing £1 trillion the government has launched a commission, chaired by former Labour pensions minister Lord Hutton, to drive through cost cutting changes.  People’s existing pensions will not be in danger but workers may have to contribute more in future.

5) ISAs are here to stay

According to new Bank of England figures there is a growing savings culture in Britain. After the disastrous credit binge of recent years that is a good thing. To underpin this sensible renaissance the government has announced a commitment to individual savings accounts (ISAs) which offer a tax-free home to your savings. From next April the amount you can save into an ISA will increase each year with retail price inflation (RPI). The current ISA allowance is £10,200 of which half, £5,100, can be saved in cash and the other half in stocks and shares.

6) Capital gains tax (CGT)