Simplification is the key - Centre for Policy Studies

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8. THE IMPLICATIONS FOR SAVERS Implementation of these proposals would open up a much more attractive savings environment for individuals. 8.1 Flexibility One less decision to make Currently, someone who has decided to save has to immediately make a second decision: do I want instant access to assets, thereby foregoing an upfront tax incentive to save, or am I prepared to lock funds away for the long term, the pain being eased by upfront tax relief? For many people, this is a difficult choice and it provides an excuse not to save for the long term or, worse, they defer the decision to some other time and end up not saving at all. These proposals are intended to reduce the scope for procrastination because, at the time of saving, a simultaneous decision would no longer be required as to whether the funds are to be readily accessible or locked away until retirement. This offers savers flexibility that is not available today. Rolling ISA assets into pension savings These proposals allow savers to move “precautionary” savings, accumulated in an ISA, into pension savings (perhaps years later), with tax relief then being credited at the standard rate 139 (and retaining the £3,600 limit for non-earners). Furthermore, the £35,000 annual contributions limit to pension savings should not apply to savers re-nominating ISA assets at retirement, and tax relief (at the standard rate) should not then be limited to the amount of income tax paid in that year. This would allow savers to re-nominate a substantial amount of assets prior to purchasing an annuity, for example. Re-nominated ISA assets 139 Tax relief on re-nominated ISA assets is limited to the standard rate so that basic rate taxpayers are not encouraged to delay pension saving on the premise that one day they may become higher rate taxpayers (and therefore eligible for higher rate relief). 55
would subsequently be treated as pension assets for tax purposes, but those renominated at retirement should not be eligible for pension savings’ 25% tax-free lump sum. This feature provides ISA savers with an ability to act on the benefit of hindsight, severing the current link between the year in which pension savings are made and the ability to claim tax relief in respect of tax paid in that same year. This may prove particularly valuable to those who have accumulated some ISA savings but may not have made contributions to a pension because they were not working (and not paying tax). Women, in particular, may have had career breaks to have children (and subsequently care for them), or they have been caring for elderly relatives. There are also likely to be some people who chose not to save in a pension because they did not trust them, or to whom retirement always seemed to be just too far away. ISA asset re-nomination, not sale and purchase Permitting ISA assets to be re-nominated as pensions savings (perhaps on a lifetime savings platform) means that savers would not incur the costs associated with selling ISA assets and then repurchasing them within a pension savings wrapper. This would represent a simplification, and would reinforce the close proximity of ISAs and pension savings. The standard rate of tax relief should be added automatically to the pension savings. Early access to pension savings Proposals 5 and 11 introduce the ability to access, pre-retirement, up to 25% of assets locked into a pension savings wrapper. This should benefit savers who may be facing cashflow difficulties, but have significant accumulated pensions savings. They could then perhaps avoid home repossession, pay health-related costs or meet other, perhaps unexpected, expenses. Figure 12: enhanced savings flexibility Employer ISA + 20% tax relief Pension savings encompassing AVC, personal pension, SIPP, stakeholder, Group schemes, etc. Separate and aggregated presentation of all ISA and pension assets Up to 25% pre-retirement Employee 56
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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 38 and 39: There are other aspects to consider
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 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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