Last week I began to deduce what we might expect in relation to currently proposed and potential future reform in the light of the appointment of Ros Altmann as pensions minister.
Cleary, I am not privy to her plans and so all I have written and will write is based on what can be gleaned from relatively recent and publicly available reports and quotes.
I have already considered drawdown reforms generally, the lifetime allowance, charges and the secondary annuity market. So what else might be worth looking at?
Altmann appears to be a fan and positive promoter of the importance and potential value for money of good financial advice, especially in relation to pensions and retirement planning.
The pension minister is also a strong supporter of more funding (and enthusiasm) for this difficult problem.
Structure of pensions and savings
Meanwhile, she has spoken out in favour of simplifying savings. She seems in favour of limiting any further “tinkering” with the taxation of pensions and has suggested that a lifetime savings account (a fund that can be dipped into throughout life and not just used for retirement) is worth giving some further thought to.
It may be recalled that the “Lifetime Isa” – a not dissimilar idea – has been put forward by the Centre for Policy Studies. Only last year, research fellow at the think-tank Michael Johnson said in a paper that he wants the Government to take advantage of the popularity of Isas by transforming it into a lifetime savings product. He believes the Lifetime Isa would simplify and boost savings of those in their twenties and thirties. He put forward eight proposals:
- The Chancellor should merge the cash Isa and stocks and shares Isa into a single Lifetime Isa.
- Junior Isas should be folded into the Lifetime Isa. So, for those under the age of 18, the Lifetime Isa would be like today’s Junior Isa.
- A Lifetime Isa should automatically be established when a baby’s name is registered with a parent-nominated provider. A kick-start lump sum contribution of, say, £500 could be offered to lower-earning parents.
- For every £1 saved in a Lifetime Isa, the Treasury would contribute 50p, up to an annual allowance of £8,000. This Treasury incentive, capped at £4,000, would be paid irrespective of the saver’s taxpaying status. Further contributions, up to a total annual limit of £30,000, would not receive any Treasury incentive. The proposed annual allowance and annual limit would be shared with pension products (i.e. the total contributions to both plans should not exceed £30,000 in a single year).
- Before the age of 60, permitted withdrawals would be limited to an amount equal to the total nominal value of the original contributions (i.e. not capital gains or accumulated income), provided that 50p were first repaid to the Treasury per £1 withdrawn. After the age of 60, withdrawals up to the equivalent of the total non-incentivised amount saved would be tax free and further withdrawals, representing incentivised savings and any capital growth or accumulated income, would be taxed at the saver’s marginal rate of income tax in the tax year of withdrawal.
- All Lifetime Isa providers should be required to offer a default fund that has to meet certain criteria. For example, dividends should be reinvested and there should be a cap on underlying fund costs, say, at 0.35 per cent per annum.
- The Lifetime Isa should be included in the auto-enrolment legislation’s definition of a “qualifying scheme” and thus be eligible to receive employer contributions, provided they were taxed as part of the employee’s income.
- Savers should be able to leave unused Lifetime Isa assets to a beneficiary’s Lifetime Isa free of inheritance tax subject to a limit of, say, £100,000.
It will be interesting to see if anything comes of these proposals. The CPS is not without influence and there is some (although by no means complete) alignment with some of the ideas put forward by previous pensions minister Steve Webb in relation to pure pensions savings. As stated above, Altmann does not seem a million miles away from this idea either.
Tony Wickenden is joint managing director at Technical Connection