What does the budget mean for savers?

The savings headline from yesterday’s budget was the new green savings bond that the Government is due to launch later in the year, but this was not the only part of the budget that impacts savers. To help savers get an understanding of how the budget impacts them, here we’ve looked at what the budget means for savers.

Yesterday, the Chancellor confirmed that a new green savings bond would be launched this summer. The savings account will be available to consumers and will be offered through National Savings & Investments (NS&I). Apart from the fact that the account will be linked to the UK’s sovereign green bond framework and deposits will help to fund efforts to tackle climate change, no further information about the product has been announced yet. As such, we still do not know what type of account it will be, although some have suggested it will be a fixed rate account. As well as this, there is no hint yet as to what rate will be offered.

It has, however, been confirmed that the green savings bond will not be included in the NS&I net financing target for 2021/22. Yesterday, NS&I revealed its net financing forecast for 2020/21 is £20 billion against its revised funding target of £35 billion. NS&I has stated that its net financing target for the 2021/22 tax year is significantly lower at £6 billion.

Although there has been a significant fall in the funding target for NS&I next year, as the green savings bond is not included in this target, there is still optimism that it may be launched with a market-leading rate.

The budget revealed that the ISA tax-free allowance for the 2021/22 tax year would remain at its current level of £20,000. This means that ISA savers can deposit up to £20,000 in ISAs without having to pay tax, however this limit covers the total deposited in all types of ISAs including cash and stocks and shares options. As well as this, the Junior ISA tax-free allowance will remain at £9,000 for the 2021/22 tax year.

There was no mention in the budget of extending the reduced Lifetime ISA (LISA) withdrawal penalty charge of 25% to 20% into the new tax year. As such, those with a LISA should expect the penalty for making withdrawals from their LISAs, unless for reasons permitted such as using the funds to purchase a first home, to increase to 25% from the 6 April 2021.

Those saving towards a pension have had their Pension Lifetime Allowance tax-free threshold frozen at its current level of £1,073,100 until April 2026.

Those already with a state pension should still expect to get a state pension increase of 2.5% in the new tax year. As well as this, there was no mention in the budget about making any changes to the triple lock system, which sees state pensions rise each year either in line with earnings, the consumer price index (CPI) or 2.5%.