1) Leave pension tax relief alone….and certainly avoid gimmicks – any system of incentives needs to be affordable now and in the future. Our research into what incentivises people to save1 showed that one of the biggest barriers to increased pension saving was savers saying they did not trust the government with their pension fund. Constant changing of the rules around pension taxation increases complexity and undermines trust; an essential ingredient of creating a sustainable pension system. Whatever changes are made, they need to be for the long term and not invite further tinkering over coming years.
2) No more fiddling with the auto-enrolment timeline – auto-enrolment has been a great success with recent figures from the ONS2 predicting an additional £17 billion of pension saving by 2019/20, with 10 million people newly saving or saving more by 2018. The need to get people saving more and for longer remains as pressing as when the Pensions Commission made its recommendations in 2005. We cannot let the timeline on escalating contributions slip any further.
3) LISA is not always nicer…particularly versus auto-enrolment – the idea that LISA will undermine pension savings are, we think, overdone. Those who are determined to buy their own home but can’t afford to do that and contribute to their workplace pension will surely opt out of the pension in any case. However one person who drops out of auto-enrolment in favour of the LISA for their retirement saving is one person too many. Auto-enrolment is always the best option as, come April 2019, the employer contribution plus the tax benefits delivers a return of 70%3 on a net contribution for a basic rate taxpayer. This compares to the 25% tax benefit under the Lifetime ISA so the workplace pension wins hands down. We must make sure that people understand this message otherwise they could miss out on a big boost to their retirement savings.
4) Abolish Lifetime Allowance for defined contribution schemes and the Annual Allowance for defined benefit schemes – it seems reasonable to limit how much people can save in a DC plan and to cap the overall benefits from DB. But the Lifetime Allowance is a tax on successful investing and the Annual Allowance hits long serving DB members unfairly.
5) Simplify tapered Annual Allowance - the tapered annual allowance is incredibly complex and introduces uncertainty and cost for individuals and employers. While we expect few to shed tears over the plight of high earners, it’s important to recognise that they help absorb the costs of running a pension scheme and subsidise those with smaller accounts resulting in lower fees across the scheme. If we lose high earners from schemes altogether, the same costs will need to be paid for by those who remain which could push average fee levels up.
Richard Parkin, Head of Pensions Policy at Fidelity International, said: “Having made great strides in improving pension coverage through automatic enrolment and added flexibility through pension freedom, increasing pension contributions and ensuring that pension saving is still a ‘no brainer’ for everybody remains the last piece of the jigsaw. We must create a pension system that people can engage with and trust. Fundamentally, we believe that the Chancellor should allow things to bed down for the time being – constant tinkering undermines trust and confidence in pensions at a time when the need to save has become only more crucial.
“If any major changes are to be made then they must be done carefully and not rushed through. We have a long way to go to get contributions to the level they need to be to support decent living standards in retirement. The Chancellor must view the retirement landscape as a long-term project with an overall objective and not chip away at the edges.”
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