As expected, the Budget deferred draconian change on pension tax relief to another day and instead gave us a halfway house to the pension Isa called the Lifetime Isa.
The Lifetime Isa looks like a good idea for young people saving for their first home and is certainly more flexible than the current Help to Buy Isa.
As a retirement savings option, it also looks superficially attractive – to basic rate taxpayers at least. But it quickly loses its shine on deeper consideration.
First, the Lifetime Isa does not figure in automatic enrolment, so it does not currently qualify for an employer’s pension contribution.
Second, without the nudge to save auto-enrolment delivers, how many will take out a Lifetime Isa? The Help to Buy Isa, which is very similar to the Lifetime Isa and available now, is hardly killing off pension saving is it?
But the biggest drawback is the Lifetime Isa’s major retirement benefit – its tax-free status on withdrawal at age 60 – relies on the governments of 2037 and beyond to hold good to that promise. A bird in the hand, as the saying goes.
One idea likely to make a bigger impact in the short term is the pensions dashboard. In the words of the Treasury, the Government will ensure the industry designs, funds and launches a pensions dashboard by 2019. Some people say 2019 is ambitious. That would be true if what is envisaged is a “boil-the-ocean” project.
Yes, people should be able to view all their combined pension data anywhere and any time they choose as well as transfer their money at the drag of an icon, but that should be the long-term goal.
If we are to deliver a dashboard quickly, then those that are able and willing should be left to get on with it. In modern IT-speak, we need an agile approach.
“Yes, people should be able to view all their combined pension data any time they choose as well as transfer their money at the drag of an icon, but that should be the long-term goal”
So, phase one would include just modern unit-linked defined contribution pensions rather than, say, defined benefit occupational pension schemes. Some of these occupational schemes find it difficult to supply coherent written information to their members, so asking them for a feed of live data may be a tad ambitious.
If the project is to be agile, then phase one needs to leave behind those that are not.
They say things like, “We need Government to legislate before we can deliver a dashboard”. No we do not. The industry already supplies data feeds to IFA back-office systems and corporate portals, neither of which needed legislation. By phase five, we may need legislation to force those fusty occupational schemes and back-books to supply data, but that is tomorrow’s problem.
The other thing that might slow this project down is the word “funds” in the Treasury’s statement. To some software development houses out there, this word means, “Hey, I could make some money out of this”.
These software houses then lobby Government for a “federated” model, an unrestricted free market of dashboards, most without a direct supply of data. This would leave us with several different dashboards trying to speak to each other without being able to speak the same language and without leaking data. And each would be presenting customer data to the same customers in many different ways. As if pensions were not complicated enough already.
So, we get a vicious circle. Even the willing providers do not want to develop a pension dashboard if it means sharing customer information with those software developers that are only interested in making a fast buck.
If the Government is prepared to allow a coalition of the willing to develop a secure, simple solution, then we may see the first working dashboard as early as next year and certainly long before 2019.
It would be immensely helpful if that coalition included the Department for Work and Pensions. The state pension still makes up around 45 per cent of newly retired pensioners’ incomes, so a pension dashboard without the state pension delivers only half the value it ought to.
John Lawson is head of financial research at Aviva