It seems hard to believe now but there was actually a very brief period in my life when I earned more money than I knew what to do with. It only lasted two or three years and I remember it with a sense of equal fondness and embarrassment at how much I managed to both enjoy – and waste.
House in nice part of town? Check. Indulge a vintage scooter hobby? Check. Holidays and weekend breaks in exotic locations? Check. Designer gear worn a handful of times? Check. Charitable donations? Kind of: in hindsight, I could have done a lot more than I did.
The other option open to me was to save. And for a couple for years I did just that, pumping as much as I could into an occupational pension scheme, mopping up additional earnings with a private pension and making the most of both my ordinary PEP and single company PEP allowances.
Even TESSAs got a look in: advisers of an older stripe will remember how you could save up to £3,000 into one in the first year and £1,800 in each of the second to fifth years, up to a maximum of £9,000.
With hindsight, the striking thing about all these vehicles was their limited traction among social groups who were always the least likely to save in the first place. Sure, the more risk-averse millions might stick a few quid in a TESSA. Those with a hardier risk profile took the full-fat equity PEP option, or ventured into enterprise investment schemes and venture capital trusts.
But overall, the creation of multiple tax-free savings schemes primarily benefited a small number of better-off people who wanted to shelter their money from Hector the Tax Inspector. In any event, for the vast majority of savers themselves, a simple binary choice of Isas and pensions such as used to exist until a couple of years ago, with easy-to-understand savings limits, did the trick perfectly well.
Except, of course, that is not how the Government see things. In recent years it has complicated the financial landscape with more and more schemes theoretically aimed at different groups of savers it says it is determined to help.
If the Government was so keen to come to the rescue of young would-be homebuyers,
it would build more homes
Down a dangerous road
For example, the Help to Buy Isa, where you can save up to £12,000, kicking off with £1,200 and then topping up with up to £200 a month. When you finally buy your home, you will receive a bonus of up to 25 per cent of the amount saved in your H2B Isa – but only on completion and not on exchange of contract. And only for house purchases up to a maximum of £250,000, or £450,000 in London.
If you thought that was hard to get your head round, there is now a Lifetime Isa to contend with. Here, you can save up to £4,000 a year and the Government will chip in a 25 per cent bonus every year, initially, then monthly after April 2018. This is paid on the contributions you make, not the amount in the Lifetime Isa itself – but only until you are 50.
To earn the maximum £32,000 bonus, you would need to start saving at 18 – you cannot open a Lifetime Isa after the age of 40 anyway – and keep going until you are 50. Plus, there are restrictions on how you access your money while still keeping your tax-free bonus, what price property you can buy and the age, 60, after which you can use the money towards your retirement planning.
If I were completely naïve, I might think the whole purpose of this proliferation of tax-free schemes is designed to meet the needs of groups who require personal solutions to their savings problems, for example those buying their first home.
Except that if the Government was so keen to come to the rescue of young would-be home buyers, it would do so by building more homes, thereby keeping prices stable, rather than throwing a few quid into the demand-side pot.
Moreover, the whole thing is an incredibly complex mess. Many savers into a Lifetime Isa will be attracted by the seeming opportunity to make use of a single vehicle for either a pension or a house purchase, without realising the penalties for withdrawal may, in some cases, nullify the benefits of saving in the first place. The dangers of misselling – or misbuying – this product are clearly evident.
There must also be serious doubts as to whether young people, those aged 40 or less, are likely to be motivated by such convoluted tax incitements. Those who really need to be won over to do so – the financially worse off – would be better off with a pound-for-pound matching scheme up to a fixed monthly limit.
And that applies equally to pensions, as well as Isas, with the benefits of each type of arrangement clearly delineated and understood.
Ultimately, people now in the position I was fleetingly able to be a part of 20 years or so ago will benefit. They will make use of any and every vehicle and tax allowance open to them to protect their money from the taxman.
But for the vast majority, this is a pointless and expensive waste of potential tax revenue, benefiting a limited number at the expense of other incentives that could genuinely helped to promote a savings habit among the British public. Such a shame.
Nic Cicutti can be contacted at firstname.lastname@example.org