If you always wanted to retire to a former lock-keeper’s cottage on one of Britain’s canals, the chances of achieving that dream rose considerably after the chancellor’s recent pre-Budget report (PBR).
In a nation gobsmacked by the government’s plan to borrow £118 billion in the next financial year (2009-10) – three times Alistair Darling’s prediction in March – it was easy to miss a promise to list state-owned assets “with potential for alternative business models” likely to be sold to raise much-needed cash.
The Queen Elizabeth II Conference Centre in Westminster is beyond small investors, but British Waterways’ “canalside property portfolio” sounds more promising.
Otherwise, boom and bust is back with a vengeance. Darling’s warning of years of austerity to 2015 means that even the public sector is no longer immune, with the Institute of Fiscal Studies (IFS) predicting cutbacks of £37 billion in government spending, starting in 2010-11.
The first step, with tax rises looming, must be to use that Cash Mini-ISA allowance lifted to £3,600 in the current financial year.
Once these savings go outside the tax net, they can stay there indefinitely, moving between providers if better accounts emerge.
If the PBR signals a return to a high- tax, low-growth economy, as some claim, it’s feasible that ISAs will be part of many private sector pension pots, particularly for people nearing retirement – because the money is unlikely to do much better over the next few years.
The next step – as unemployment soars – might be a payment protection insurance (PPI) policy to guard mortgage repayments against accident, sickness and unemployment up to a maximum £1,500 per month for a year with cut-price providers like Paymentcare and British Insurance.
Shane Craig, at Paymentcare, says a monthly premium of £39.50 covering a monthly mortgage repayment of £1,000 – probably cheaper than the policy from your lender – could be a prudent move if 2009 sees more job losses than 2008.
So far as the chancellor’s main gift – the temporary 2.5 per cent cut in VAT – is concerned, Andrew Hagger at financial website Moneynet.co.uk says shoppers can top up their saving with a cashback credit card.
Geoff Tresman, chairman of Punter Southall Financial Management, with 4,000 private clients and 25,000 in group schemes, says: “My advice to anyone who gets anything from the £20 billion government handout is to pay down debt.”
Pensioners have also locked in a decent rise – from £90.70 to £95.75 – in state pensions next April, thanks to the five per cent inflation rate recorded in September.
Stephen Noakes at Lloyds TSB Mortgages advises a similar defensive strategy for homeowners enjoying sharp falls in tracker rate or standard variable rate (SVR) mortgages.
“Firstly”, he says, “borrowers should address any outstanding debt, such as store or credit cards, starting with those with the highest APRs.
“Then they should set a standing order on pay day to sweep additional cash into a savings account – or they may decide to make overpayments on the mortgage. There might also be a case for switching from an interest-only mortgage to one with an element of capital repayment.”
For middle income workers, one trap in Darling’s package centres on changes to National Insurance contributions (NICs).
In April 2009, the upper earnings level from which NICs are deducted from employees at the rate of 11 per cent rises to £43,875, and in April 2011, the contribution rate above that level rises by 0.5 per cent to 1.5 per cent.
The changes could cost an employee on £44,000 an extra £548 per year.
With patience, and a helpful boss, Lee Smythe, financial planning director at Killik & Co, says some workers will avoid this new levy: salary sacrifice can put extra money both in your pension pot and in your pocket, with less going to the taxman.
But it does put your basic wage in the books at a lower level – which could mean a smaller rise if your firm awards flat percentage rises.
Amid the doom and despair, the chancellor tossed an encouraging titbit to any low-paid workers still able to think about saving. His Savings Gateway means that for every £1 low earners manage to save, the government adds an extra 50p to accounts held in banks, building societies, credit unions and the Post Office. Friendly Societies want to be involved too.
It sounds generous, but beware of “Santa” Darling bearing gifts!
Low-paid workers could find their retirement income significantly affected by means testing - and their careful saving might cancel benefits they would otherwise have collected in their old age.
Life ain’t going to be too much fun in “Austerity Britain”, is it?