George Osborne said on Thursday he hoped the pensions shake-up and other measures unveiled in the Budget would stimulate a “different culture” in Britain that would reverse the country’s declining savings rate.
Speaking on the BBC Today programme, the chancellor said the savings rate would probably have declined as the economy came out of recession. “But in my view we want to make sure it’s higher than it has been historically and is projected to be in the future,” he said.
The Office for Budget Responsibility has forecast that the household saving rate will fall by more than half by 2018 from the 7.2 per cent of income it was in 2012.
“I’m not pretending to be a miracle worker, I’m not pretending this is going to change the situation overnight, but these changes to pensions and savings. . . all contribute to creating a different culture,” he said.
Under measures announced in the Budget people will have more freedom to choose what they do with their pension pot in the most radical shake-up of the industry since 1921.
Other announcements included raising the amount people can save in ISAs from £11,500 a year to £15,000, cutting the 10p rate of tax on income from savings and increasing the income tax threshold from £10,000 to £10,500.
“The pension and savings measures aren’t going to transform the situation overnight,” he said. “It’s about heading in a different direction, a better direction.”
Mr Osborne said he did not think the pension reform would precipitate many retirees falling into poverty after blowing their savings because of increases in the state pension and a change to means testing.
Ed Balls, the shadow chancellor, welcomed the pensions changes, telling the BBC: “It’s good to have more flexibility and choice,” and “this is a big and radical reform”.
But he warned that it was crucial to roll out sufficient financial education, so “people do not run out of their retirement pot long before their retirement ends”.
Shares in some annuity providers continued to fall on Thursday as investors weighed the implications of retirees no longer having to take out one of the products.
Partnership Assurance, the biggest provider of annuities, which fell by more than 50 per cent on Wednesday was down 2.1 per cent at 139.7p in early trading.
Resolution, which said on Thursday the changes had “negative implications” for new business inflows from the sale of annuities, was down 2.3 per cent at 326.9p.
Legal & General and Aviva, both caught up in Wednesday’s slide, were steadier, up 0.4 per cent at 212.8p and 1.4 per cent at 497.1p respectively.
Mr Balls said he opposed little in the budget because it was “so underwhelming”. “There was a big hole in the middle of it,” he told the Today programme. “Where was the action to help families who are worse off than they were five years ago, jobs for young people, a proper investment bank?”