This blog introduces a booklet I have written, ‘Greater savings for retirement‘, on the above subject. The booklet introduces new ideas – some of which are counter-intuitive – to address four inter-related key objectives:
- How to generate greater savings by the population at large;
- How to embed the new freedom and choice regime;
- How to integrate pensions and long-term care;
- How to secure a stable State pension that underpins all savings.
Clearly, achieving this involves regulation, legislation and taxation. But to get there, I start with some behavioural insights learned over recent years and decades past:
- Tax incentives for locking up money for the long term into retirement have to be better than available for readily accessible investments of which ISAs are the benchmark;
- However, provided better (as is the case currently), giving even greater incentives or changing structure has almost no impact on increasing personal savings for the long term;
- But tax rules are very relevant when it comes to decisions on how to use built up funds in later life;
- Simplicity is only relevant in terms of “sales” messages and ease of making investments (the application process); simplicity is basically irrelevant in terms of tax structure and product structure. As for modern cars which are more complex these days, it’s not what’s “under the bonnet” that determines sales but how the car is presented;
- Any changes to pensions tax regime for future contributions creates “before” and “after” pension pots which doubles complexity;
- Pure insurance is tough to sell and people don’t want to buy.
From this, a number of suggestions are made in the booklet – these include:
- To maximise savings by individuals, there should be permitted a safe, consumer-protected, “no advice” sales process to bring in many new entrants as suppliers;
- To make decisions at retirement, and later, easier (thereby embedding freedom and choice), tax should be neutral for all options;
- There is a way on tax (a “middle way”) which delivers all the above whilst giving serious extra tax to the Chancellor and meeting all Treasury principles;
- Taken together, the ideas deliver “pension saving is best value always – in work and throughout retirement” a critical message for integrating long-term care;
- Not forgetting some ideas on addressing State pension sustainability.