Chancellor Jeremy Hunt’s autumn statement included a host of measures designed to widen access to investment, including through individual savings accounts and pension reforms.
Though Hunt glossed over the proposals in his speech, the government’s changes were buried within the 111-page full autumn statement document - published after the speech in Parliament.
ISA changes
Changes to individual savings accounts (ISAs) are set to come under the government’s sweeping bid to simplify the tax system.
This will aim to make ISAs more user-friendly, according to the government, allowing people to lock away funds and even invest up to a certain amount tax-free.
From April next year, savers will be able to open more than one account given they are eighteen or older, partially transfer funds between these, and will not have to reapply for dormant accounts, as before.
This “much-needed attention” will “inject much-needed flexibility and simplicity into the system,” according to Hargreaves Lansdown analyst Sarah Coles.
Such changes will offer protection for those who may accidentally open a second account within the same tax year, while also allowing more flexible access to the best deals, she said.
On a more technical level, funds in certain ISAs will be allowed into long-term asset funds, as well as open-ended property funds, in a move the government says will expand investment opportunities.
“These offer sophisticated and higher risk investment opportunities in areas like private equity, infrastructure and real estate,” Hargreaves Lansdown’s Susannah Streeter added.
“These have previously been hard to reach for retail investors.”
Another key change will come if fractional shares contracts are permitted as ISA investments, with the government saying consultations on the move would take place.
This essentially means people will be able to invest in a wider range of companies through their ISAs, given there will no longer be rules binding them to buying whole shares.
“The opportunity to buy a fraction of a share might persuade more newcomers to dip their toe in,” Streeter said, since investors will no longer be required to commit potentially hundreds of pounds on a single share in a large firm, such as Apple.
One negative from Hunt’s ISA changes, as highlighted by Hargreaves, was his decision to freeze the tax-free allowances within each respective type of account.
Dubbing the move “disappointing,” analysts added the frozen rates were increasingly falling behind inflation and meant more stings for people through the likes of income tax bills.
Analysts at UBS welcomes the increased flexibility, but said it does not see it as a significant positive incremental driver of fund flows for wealth management companies.
Pension reform
Changes aimed at encouraging investment weren’t limited to ISAs in the government’s plan.
Given Hunt’s rhetoric of boosting growth in the coming year, plans to prompt further investment through savings are set to come through pension reforms.
The most applicable to people day-to-day will likely be a proposed rule change allowing employees to decide where pension contributions are made upon starting new jobs.
A so-called “lifetime provider model” will eventually aim to allow workers to have one pension pot for life, instead of moving to new pension pots every time they move jobs.
What the government hopes this will do is provide people with greater “agency and control” over their retirement funds, alongside preventing pension pots from being effectively lost as holders move around jobs.
With the lifetime model going to industry consultation, analysts at UBS said it sees see workplace providers such as Aviva PLC (LSE:AV.), Legal & General PLC and Phoenix Group Holdings PLC (LSE:PHNX) as most impacted, with St James's Place's business model seeing reduced inflow from pension consolidation.
"However, if the new model will allow employer contributions into individual pensions, then the likes of SJP and QLT could be net winners as pension consolidation will likely take place earlier in employees' lifecycles."
Another broader change up for consideration is the role of the Pension Protection Fund, which currently offers compensation for people hit by employer insolvencies.
Under government plans, the fund could also become a consolidator for “schemes unattractive to commercial providers”.
According to EY analysts, “this is likely to be the subject of much debate over the coming months,” given questions remain about how this would interact with the wider market.
Alongside this, the government unveiled a reduction in the tax paid on surplus pension contribution repayments from 35% to 25%, a British Business Bank growth fund targeted at pensions, and guidance for local governments to implement 10% allocation ambitions for private equity investment.
These changes “will provide better outcomes for savers, drive a more consolidated pensions market and enable pension funds to invest in a diverse portfolio,” according to the government.
Aside from reform, other announcements around pensions saw the government commit to the ‘triple lock’ system.
Given this determines how much state pension payments increase each year based on the highest of earnings growth, inflation or 2.5%, these will rise by 8.5% next year in line with the former.