It has never been more important to encourage saving. But advisers know only too well how challenging the complexities of the UK savings and pensions landscape make it for people. Any trends towards simplification would be welcome, but unfortunately recent developments have moved in the opposite direction.
Take Isas, for example. Their simplicity has always been a strong selling point, with the tax-free benefits attracting millions. But they are in danger of being undermined by over-complexity and confusion. Indeed, new investment in Isas fell last year.
Of course it is only fair to point out that recent changes allowing £1,000 of annual tax-exempt savings income and £2,000 for dividend income have reduced the attraction of Isas for the average saver. But there are more problems.
We now have a different Isa for every day of the week. In addition to the Basic Isa (which merged the old Cash and Stocks and Shares Isas), we also have Help to Buy Isas, Innovative Finance Isas, Junior Isas, Flexible Isas, Inheritance Isas and Lifetime Isas. Each has different rules, restrictions, limits and interactions with other Isas, as well as some large penalties for customers.
There are particular dangers lurking in the new Lifetime Isa.Hastily launched for the under-40s as a hybrid product that encompasses saving for a first home and elements of retirement, they are not suitable for many of those eligible to invest, which presents a significant risk of misselling.
Any product designed to achieve two separate objectives is bound to confuse. Giving people a bonus to help with house purchase is one thing, but this should not undermine putting money aside for retirement.
Workplace pensions are the best way for almost every employee to save for later life. Even the self-employed may be better advised to use pensions over Lifetime Isas.
Pensions offer the best behavioural incentives to keep money for much later in life and they are locked in, thus removing the temptation to withdraw funds and face draconian penalties of an exit charge on top of losing the Government bonus.
Lifetime Isa money is more likely to be completely withdrawn at age 60 – far too young to provide later life income. This means future taxpayers having to support larger numbers of pensioners.
A recent report from the Association of Accounting Technicians also supports abolishing the Lifetime Isa. As well as this, it proposes creating an Isa dashboard to help people see all their savings in one place. This is an interesting suggestion.
I would support the idea of one umbrella savings vehicle into which everyone can pay a maximum annual amount. The encouragement of regular annual savings is a better discipline and a “use it or lose it” allowance makes behavioural sense.
This money could then be allocated to different sections of the account, depending on what that person was saving for.
But pension savings should not be confused with Isas. Encouraging more people to save is an important social objective, but it must be done in the right way with user-friendly products that have sound behavioural features.
The last thing the industry needs is a new misselling scandal.
Ros Altmann is a former pensions minister