It is not surprising with the national debt at around £156bn the new coalition Government has focused on deficit reduction ahead of encouraging further long-term savings in its first few weeks in office.
With next week’s ‘emergency’ Budget looming on the 22 June, the Government may also choose to continue the focus on cutbacks but it will be an opportunity missed if it does not at least start the debate on reform of the existing pensions system, which in itself is the basis for much of the long term we face as a nation through public sector schemes.
The Government has been given a helping hand in where the potential policy reforms may be for pensions and investment with the publication of the report from the Centre for Policy Studies titled Simplification is the Key: Stimulating and Unlocking Long-term Saving.
It is authored by Michael Johnson, most recently Secretary to the Conservative Party’s Economic Competitiveness Policy Group, who makes extensive recommendations to simplify the pensions and savings regime and encourages the growth of a savings culture primarily by bringing Isas and pensions closer together.
Proposals include: setting an annual contributions limit of £45,000 a year for all tax-incentivised savings (with a maximum of £35,000 for pensions). Tax relief should be at the saver’s marginal tax rate, offering those earning more than £150,000 p.a. the prospect of at least some 50% relief – a compromise on the post-April 2011 position following the 2009 Budget and allowing partners to fund each other’s pension pots and receive tax relief, irrespective of their own earning circumstances, allowing savers to bequeath unused pension savings to third parties’ pension savings, free of IHT.
The paper describes four tax relief structures that could save the Treasury up to £8.5bn per year without risking a reduction in long-term saving.
As Johnson says, this would be a rare example of a policy ‘win-win’. He also suggests extending auto-enrolment to include Isas and, in addition, annuities purchased with Isa-derived funds should be exempt from income tax.
Given Johnson’s links to the Conservative party, his ideas are likely to be taken seriously, and importantly, they have the potential if implemented to satisfy all elements in the savings chain from government to consumers, who need greater simplicity.
Johnson’s paper is a very welcome addition to the long-term debate and let us hope the Government sees fit to at least use his ideas as the basis for a serious public debate.
