Missed by many amid the Budget’s pomp and circumstance, the summary of responses to the government consultation – ‘Strengthening the incentive to save’ – contains a resounding call for stability but no clear solution to the nation’s savings crisis.
Launched last summer as part of chancellor George Osborne’s July Budget, the consultation sought industry views on the efficacy of the current pensions tax relief system and ideas on how to better incentivise long-term saving.
Pensions have been a soft target for successive governments and Budget announcements, but pensions tax relief has become a red hot topic over recent weeks as a result of increasing antagonism over the potential hit to middle and higher earners.
There is no ideal system that balances the various requirements of a good saving system – otherwise someone would have come up with it
Bob Scott, LCP
This demographic of the population will form the backbone of voters opting to remain within the European Union in June’s referendum and in a dramatic turn of events, Osborne pulled changes to the system from his eighth Budget as chancellor.
Britain’s future in Europe will do little to change the nation’s looming savings crisis, however, and more than 450 industry respondents submitted their views to the government on how to recalibrate the UK’s savings habits.
The consultation focused on four key principles:
Simplicity and transparency
Personal responsibility
Building on the policy automatic enrolment
Sustainability in line with the government’s long-term fiscal strategy
Industry respondents added stability, communication, consistency and successful implementation to the list of fundamental principles.
The strongest theme that emerged was the need for stability and, in turn, consensus to sustain that stability over the longer term.
Respondents viewed the consultation as an “opportunity to reach a lasting settlement” for the pensions tax system and emphasised that a period of stability would allow many of the goals to be met.
Many attributed low engagement with retirement savings to poor communication of existing incentives met by a general lack of information and transparency.
Long-term steer
The government’s launch of the Lifetime Isa in this week’s Budget will provide the under-40s with a simple and flexible savings vehicle, but the longer-term fate for pensions remains uncertain.
Phil Wadsworth, chief actuary at consultancy JLT Employee Benefits, said he could not remember another industry consultation attracting such a volume of responses, but without a clearer steer from the government the paper was wide open to interpretation.
Wadsworth said the Lisa was likely a “step down the road” towards an umbrella vehicle for pensions.
“Workplace Isas are being talked about now – I wouldn’t be surprised for salary sacrifice to be redirected,” he said.
But Wadsworth warned against viewing the Lisa as an alternative to auto-enrolment. “We don’t want to turn that off – people under 40 may not be able to afford both.”
Tracking changes
Bob Scott, partner at consultancy LCP, said he had “lost count” of the number of changes to the system over recent years and that an ideal outcome for many in the industry would be a system that does not change.
“A wish would be they found something and stuck to it,” he said. “There is no ideal system that balances the various requirements of a good saving system – otherwise someone would have come up with it.”
Tim Gosling, defined contribution policy lead at the Pensions and Lifetime Savings Association, said the chancellor’s decision this week to maintain the current status quo on tax relief was “enormously welcome”.
Gosling said the creation of an independent retirement savings commission would help secure stability over the longer term.
“We think our proposal for an independent retirement savings commission able to take a long-term view on the policy area – one step removed from the heat of electoral politics – is the right one,” he said.
