Simplification is the key - Centre for Policy Studies

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There are other aspects to consider in the ISA versus pension debate. If the saver were to die before retirement, the value of their pension fund, if it has been written in trust, will fall outside their estate for inheritance tax (IHT) purposes, whereas an ISA might face IHT. Much depends upon the saver’s tax status both pre- and post-SPA retirement. Finally, potential annuitants have to consider the nuances of annuity pricing, which the above analysis has ignored. Life funds, for example, price higher (i.e. lower annuity rates) than pension funds because of self-selection risk; people voluntarily buying annuities with life fund proceeds expect to live longer than those compelled to buy them with pension fund assets. In addition, there are pricing implications for pension funds because they include wider socio-economic groups. 2.10 The gender gap Today 90% of men retire with a full basic State Pension, compared with only 25% of women, so it is no surprise that in retirement women are less well off than men. Amongst the over 65s, at least 5% more women than men live in poverty; this increases to 7% amongst the over 75s. 66 Figure 8 shows the claimants for Pension Credit; single women are nearly three times more likely as single men to be in receipt of this benefit (although there are roughly 20% more women over 60 than men). Figure 8: Pension Credit claimants, by type of claim (thousands) 67 1600 1200 Savings credit only Both Guarantee credit only 800 400 0 Couples Single men Single women This poverty gender gap is expected to widen because women are lagging behind men when it comes to saving for their retirement. 68 In 2009, 59% of men are expected to have 66 67 OECD, Pensions at a Glance 2009, Figure 2.11, August 2009. ONS, Pension Trends, Chapter 5, Figure 5.6, 23 June 2009. 23
saved adequately for old age, compared to 47% of women. 69 Furthermore, some 26% of women who could and should be saving are not saving anything for retirement, compared to just 15% of men. Women earn less than men, 70 so women who are saving in private pensions (DC and DB) contribute much less than men (£184 a month, compared to £331). Women also have more consumer debt than men. On average, they each owe just over £12,000 on credit cards, store cards and loans (men: £11,000); a further barrier to saving. The origin of this gender inequality is that pensions follow waged work, and women are more likely to be taken out of the labour market with caring responsibilities (children, parents), and they still earn less than men. But some occupational pensions schemes do not readily accommodate part time workers (predominately women) and interrupted work patterns. Women in DC schemes contribute only £90 per month, compared with £168 for men, and many men with money purchase pots buy single life annuities, leaving any surviving spouse exposed after death. And to make matters still worse, women live longer than men so, at retirement, they need a larger asset pot. 68 69 70 Notwithstanding the introduction of NI credits for carers of older people and grandchildren. Scottish Widows, Women and Pensions Report: Pensions for Today and Tomorrow, October 2009. Median weekly earnings of full-time employees for men and women were £531 and £426 respectively (April 2009). ONS, 2009 Annual Survey of Hours and Earnings (ASHE). 24
Page 1 and 2: Simplification is the key Stimulati
Page 3 and 4: THE AUTHOR Michael Johnson trained
Page 5 and 6: A note concerning data Finding a co
Page 7 and 8: These proposals depend upon having
Page 9 and 10: SUMMARY The UK’s long-term savin
Page 11 and 12: any annuitisation requirement, prov
Page 13 and 14: Thus, had pension savings products
Page 16 and 17: INTRODUCTION There has been a flood
Page 18 and 19: PART ONE: THE LONG-TERM SAVINGS LAN
Page 20 and 21: Japan’s savings ratio was once th
Page 22 and 23: scheme contribution rates are lower
Page 24 and 25: Table 1: Funded pension scheme asse
Page 26 and 27: 1.9 The international perspective A
Page 28 and 29: Table 4: ISA savers’ income distr
Page 30 and 31: Table 6: The complexity of the tax
Page 32 and 33: Figure 4: Income options upon retir
Page 34 and 35: savings by delivering a framework t
Page 36 and 37: Figure 7: When non-savers might sta
Page 40 and 41: 3. THE EMPLOYERS’ PERSPECTIVE 3.1
Page 42 and 43: When employees with DC funds retire
Page 44 and 45: More specifically, employers are no
Page 46 and 47: Both businesses do have important c
Page 48 and 49: year. 91 Clearly, there are conside
Page 50 and 51: 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 102 and 103:
APPENDIX VII FINANCIAL PLANNING TOO
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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Simplification is the key - Centre for Policy Studies

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