The Centre for Policy Studies has joined Brewin Dolphin and the Savings and Investments Policy project by calling for on the new government to make changes to savings policy to encourage greater independence and prosperity for individuals in their retirement.
The think-tank’s pension analyst Michael Johnson has outlined 16 suggestions in a new report, focusing on encouraging the rebirth of a savings culture.
Starting with broader savings culture, he says that the aim should be to raise the nation’s household savings ratio from 5.9 per cent per cent in the fourth quarter last year, to the 1980’s average of 13 per cent.
A strategy should be devised to realise that vision, adhering to principles such as the pursuit of simplification, transparency and intergenerational fairness. The report adds that costs must be controllable; there must be cross-party political consensus on pension policy; and urges fiduciary, trust-based governance rather than ‘broad brush’ regulation.
The report calls on the new government to simplify the tax framework by combining national insurance contributions and income tax into one ‘earnings tax’.
Mr Johnson also prescribes replacing today’s tax relief framework for pensions contributions with a simple flat rate relief of 50p per £1 saved, up to an annual allowance of £8,000, paid irrespective of taxpaying status. He adds that total combined annual Isa and pensions contributions should be capped at £30,000 and the lifetime allowance should be scrapped altogether.
The paper also suggests rapidly increasing today’s private pension age of 55 (scheduled to rise to 57 in 2028) to 60 in 2024, so by a year every two years, commencing in 2016.
Again, Mr Johnson calls for a new ‘workplace Isa’ to be included in the auto-enrolment legislation, along with monitoring the wider roll-out and opt out rates over the next few years of small and medium sized businesses staging.
He calls for the pot-follows-member solution to small defined contribution pensions, favouring aggregation and also demanded that work be done to “eliminate the industry’s profitable inefficiencies and rent-seeking behaviours”.
Sticking with DC, Mr Johnson states that the National Employment Savings Trust and its competitors should develop a collective drawdown capability to enable retirees to pool their longevity risk.
He also backs the establishment of a not-for-profit national annuities auction house to automate the process of shopping around, adding to pricing tension and transparency.
Earlier this week, wealth manager Brewin Dolphin called on the new government to prioritise financial policies that support savings and encourage self-reliance.
Chief executive David Nicol wants to see policies that will teach children the financial basics from a young age, encourage people to save for higher education and their own retirement, focus on long-term investment and make it easier for people to pass on their assets.
This follows calls from the Savings and Investments Policy project who since March 2014 have been meeting all the major political parties and regulators outlining possible ways for the financial services industry can work together to maintain momentum from recent initiatives and to create a financially resilient society.