Recent projections from the Office for National Statistics (ONS) highlight the importance of saving for retirement, and the need for a pension regime that is fit for the 21st century, says Andy Bell, Chief Executive of AJ Bell.
Projections issued by the ONS in December 2013 showed that 374,000 men and 393,000 women aged 65 in 2013 – that’s 8% of men and 14% of women respectively – are expected to survive to their 100th birthdays.
The total number of centenarians is projected to rise from 14,000 in 2013 to 111,000 in 2037.
These projections demonstrate the importance of saving enough during your working life to build up savings capable of providing a sustainable income over a longer retirement period. They emphasise the increasing importance of having a savings regime which not only incentivises people, but is also seen as fair and stable enough to instil confidence in the value of saving.
Investment platform AJ Bell recently wrote an open letterto the Treasury, outlining a list of seven changes needed to create a pension regime that is fit for the 21st century.
1. Scrap the lifetime allowance
Remove the lifetime allowance (and its associated, complex protection regimes) and use the annual allowance as the primary control on pension tax reliefs.
2. Simplify the current capped drawdown pension rules
Move to a simple, percentage based regime where an annual income allowance is based on the saver’s age.
3. Revisit flexible drawdown
Introduce a straightforward, more accessible requirement enabling savers to withdraw 10% p.a. of any pension savings in excess of £200,000, irrespective of their age.
4. Re-introduce a SIPP permitted investment list
Re-introduce a simple list of permitted investments for SIPPs, containing all mainstream quoted investments, UK regulated collective investment schemes and commercial property.
5. 35% tax on all lump sums on death
Apply a single rate of tax of 35% to lump sum death benefits on both uncrystallised and crystallised lump sums, which would remove the current 55% cliff-edge.
6. Allow early access to pension commencement lump sums
Protect savers from potential pension liberation approaches by allowing their tax-free lump sum to be drawn early, but only by people aged 45 and over.
7. Extend rules on serious ill health lump sums
Change the current system to allow lump sums to be paid to savers who have already crystallised their pension fund. This will allow funds to be made available to people who have less than 12 months left to live, in order to support their needs in their final months.
AJ Bell’s Chief Executive, Andy Bell, commented: “It used to be said that you can live to be a hundred if you give up all the things that make you want to live to be a hundred. Increasingly, many of us will face the challenge of having to provide for a longer period in retirement. Today’s pensions rules often fail to engage many pension savers due to a combination of complexity and lack of flexibility.
“Our proposed changes have the objective of bringing pensions into the 21st century and building a system that is simpler, more sustainable and will give people the confidence to commit to long term saving.”
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