Simplification is the key - Centre for Policy Studies

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APPENDIX VII FINANCIAL PLANNING TOOLS: A VISION OF THE FUTURE 172 Mr Andrews is a family man in his early 40s, earning around £45,000 per year. Over the last few years he has begun to take more interest in his provision for retirement, and set his aspiration at having a retirement income of at least £20,000 a year (after tax) available at age 67 if, as planned, he stops full-time work at that point. His company operates a group retirement savings plan, and he has been enrolled in that for the last five years. The company’s savings and retirement website planner show him that the contributions his company make to the group pension scheme should accumulate to a pot of around £120,000 by his retirement date, providing an annuity of around £7,700 a year on top of his basic State Pension. He has also contributed to the group scheme (as required to qualify for the employer’s contribution), but he chose to put his contribution of £2,000 a year into a group ISA provided by his employer. He chose this option rather than the pension scheme because he preferred to have the flexibility to access his savings if required, and was aware that the income he would already have in retirement from his pension fund and the State Pension would exceed his personal allowance (so that any further pension fund income would be taxed at the standard rate). The financial planner website showed this could accumulate an ISA fund of a further £100,000 by age 67, which could yield an income of £4,000 free of tax in retirement. In addition he had received an inheritance from his grandparents’ estate of £80,000. He had fed this into his ISA account over a period of three years to add to his retirement fund. The planner showed that to reach his target he should save an additional £1,000 to £1,500 a year into his ISA, and he had asked his employer to deduct an extra £100 per month from his salary for this purpose. He was reassured in doing this that if he needed 172 With thanks to Lord Blackwell. 87
to draw on this money to help fund his children through university he would be able to draw on it without penalty, and make it up again later. He looked at his employer’s financial planning website regularly to check that he was on course and found it reassuring to know he was building up the savings he needed. He felt in control and no longer worried about whether he was doing the right thing. 88
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Simplification is the key Stimulati
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THE AUTHOR Michael Johnson trained
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A note concerning data Finding a co
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These proposals depend upon having
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SUMMARY The UK’s long-term savin
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any annuitisation requirement, prov
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Thus, had pension savings products
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INTRODUCTION There has been a flood
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PART ONE: THE LONG-TERM SAVINGS LAN
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Japan’s savings ratio was once th
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scheme contribution rates are lower
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Table 1: Funded pension scheme asse
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1.9 The international perspective A
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Table 4: ISA savers’ income distr
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Table 6: The complexity of the tax
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Figure 4: Income options upon retir
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savings by delivering a framework t
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Figure 7: When non-savers might sta
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There are other aspects to consider
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3. THE EMPLOYERS’ PERSPECTIVE 3.1
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When employees with DC funds retire
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More specifically, employers are no
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Both businesses do have important c
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year. 91 Clearly, there are conside
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elderly and the wealthy, not least
Page 52 and 53: 5. THE TREASURY’S PERSPECTIVE 5.1
Page 54 and 55: Whilst the UK’s NRR for the mean
Page 56 and 57: Currently, reducing pensioner pover
Page 58 and 59: Table 13: Net cost of tax relief un
Page 60 and 61: TEE would be hugely attractive to p
Page 62 and 63: 5.6 Tax treatment: international pe
Page 64 and 65: PART II THE PROPOSALS AND THEIR IMP
Page 66 and 67: Proposal 6: post-retirement, amend
Page 68 and 69: 7. TAX SIMPLIFICATION: SOME OPTIONS
Page 70 and 71: 8. THE IMPLICATIONS FOR SAVERS Impl
Page 72 and 73: The higher rate taxpayers’ perspe
Page 74 and 75: segregated from any employer-sponso
Page 76 and 77: epresent a further step down the pa
Page 78 and 79: 10. THE IMPLICATIONS FOR THE PENSIO
Page 80 and 81: Such principles would have to ensur
Page 82 and 83: Figure 13: The cost of pension savi
Page 84 and 85: pool of underlying pension assets (
Page 86 and 87: hardship” facility, whereby cash
Page 88 and 89: occupational pension scheme benefit
Page 90 and 91: CONCLUSION We would save more, for
Page 92 and 93: ACKNOWLEDGEMENTS This paper was cat
Page 94 and 95: APPENDIX I Summary of proposals fro
Page 96 and 97: APPENDIX II Value of assets in priv
Page 98 and 99: depending upon age at the time that
Page 100 and 101: APPENDIX V PRE-RETIREMENT ACCESS TO
Page 104 and 105: APPENDIX VIII THE MODEL 173 The
Page 106 and 107: GLOSSARY Alternatively Secured Pens
Page 108 and 109: pensions and earnings, but excludes
Page 110 and 111: those with earnings above £4,940 b
Page 112 and 113: in cash terms, i.e. fixed at £770
Page 114: The UK savings industry is barely t
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