A couple of weeks ago, I referred to the fact that the financial services industry as a whole had largely failed to achieve significant beneficial changes for the many millions of clients who look to it for the products they need to protect them in their time of need.
In fairness, by far the biggest responsibility for this failure lies at the door of the previous Government.
Its arrogant refusal to listen to what were straightforward common-sense arguments was shocking, all the more so when it belatedly moved to implement some of those very changes it had been urged to do for years – but only on the grounds of political expediency. In doing so, Labour forfeited people’s trust in its willingness to listen to their concerns.
Today we are being told that the new coalition Government will be willing to take on board well-made arguments, presumably as long as they make sense to those in office – and they cost little or nothing to implement.The latter is likely to be hard to achieve but let us look first at what we might all be able to agree on.
On inheritance tax, in the current economic climate it is right to abandon – at least temporarily – plans for a massive increase in the IHT threshold as originally proposed by the Conservatives.
Elsewhere, as a non-married person, I fail to see why having my long-term relationship duly noted by a registrar should entitle me to greater tax benefits, or why having children ought to lead to lower taxes, especially as I am already willing to pay for other people’s little darlings to go to school, attend university and such like.
All these abandoned “promises” will help keep the public deficit down at a time when we are all being told that we need to reduce our spending.
But there are other areas where it will be necessary to spend money or to budget for some increases in spending.
Pensions are a classic example. Here the watchword needs to be flexibility. Both Ros Altmann, a specialist in this field, and Standard Life’s head of pension policy John Lawson have both come up with sensible ideas on simple reforms to the present pension system.
First, on the spending front – let us sort out once and for all the dreadful sore that is Equitable Life. Hundreds of thousands of Equitable pensioners deserve a decent income in retirement after the shoddy treatment they have received from the Government and regulators over the past 10 years.
Also, and this is where it will cost money, we need to stop the means-testing for pensioners which removes the incentive to save. In the longer term, this will actually save the state money, albeit only in 20 or 30 years time.
Part of the initial costs can and ought to be paid by changes to higher rate relief on contributions. Although a higher-rate taxpayer for most of the past few years, why should I receive relief at 40 per cent on my contributions into a pension scheme? That said, there may be an argument about reducing this relief gradually, either in percentage terms or by lowering the income at which it applies.
Ros is correct to point to the dangers of levelling down by many employers in terms of contributions into Nest. Employers need to be offered a combination of carrot and stick in terms of tax breaks and potential penalties to ensure it does not happen.
John Lawson’s proposals on flexibility are also interesting, both in terms of encouraging people to save into Isas and then placing the money into pensions, or allowing them to retire early.
I also agree that people ought to be able to pass on their unused lump sums to their dependents without incurring a massively punitive 82 per cent tax bill.
However, what I would like to see is Standard Life costing these proposals and drawing up scenarios that tell us how many people are likely to stop work and at what age, and what the final bill will be. If it turns out that John’s ideas are revenue-neutral or will cost relatively little, they should be adopted.
The most important thing is that for all of us – IFAs, industry specialists, even journalists – there is a blank canvas to paint on for the first time in 13 years. That’s not to say this Government will be willing to listen any more than the last one was.
But at least there are some openings, where there had not been for a long time before. The extent to which we use those openings will make a massive difference to the lives of millions for at least a generation to come.
Nic Cicutti can be contacted at firstname.lastname@example.org