Simplification is the key - Centre for Policy Studies

FOREWORD
This paper should be welcome by everyone interested in the future of savings and
pensions in the UK, for the clarity of its analysis and practical solutions for encouraging a
stronger savings culture.
Few doubt that our current complex system of products and tax structures is in urgent
need of reform. The UK used to boast strong pension provision for many of those in
work, based on the old final salary “defined benefit, DB” occupational pension schemes.
However this pattern did not typically work well for women, who often had less consistent
employment. Furthermore as these schemes have become unaffordable, the weight of
future retirement provision has shifted towards the building up of personal investment
pots, much of this through direct contribution pension schemes. Without the guarantee
of a final salary match, the risk has transferred to the individual and the attraction of
pensions has reduced. Take up rates in group schemes are not much higher than 50%,
suggesting that many people consider the tax relief insufficient incentive to persuade
them to tie up their savings in a long-term fund where they have limited access prior
purchasing an annuity in retirement. Recent tax changes have compounded doubts
about the value and permanence of the tax relief.
At the same time, new savings vehicles, ISAs, with a different, simpler structure of tax
relief and much greater flexibility, have been growing in popularity. Yet, although for
many people they can be an equally effective way of providing tax incentives for
retirement income, the current regime severely limits ISA savings and treats ISAs and
pension savings under entirely separate rules.
This paper sets out a number of important and practical proposals to end this artificial
complexity and bring all long-term retirement savings together into a simpler lifetime
savings account. The resultant structure would be simpler and more attractive for savers.
It would be welcomed by many in the industry as a way of streamlining their marketing
and administration processes. And for government it offers the prospect of helping build
a stronger long-term savings culture without increasing, and potentially reducing, the
immediate tax cost of savings incentives.
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