The Treasury Committee has published its Report on the 2014 Budget. Some of the recommendations contained in the report include:
On pensions reform
The Committee notes that all witnesses welcomed the greater flexibility and choice provided by the Government’s proposed pension reforms. (paragraph 118)
Consumers will need considerable support in navigating a market which is undergoing major change and in which consumers are likely to be offered an array of new products. The Committee recommends that the proposed guidance under the guarantee observe the following principles. It should:
- Be demonstrably impartial as to providers and type of product;
- Include at least an initial opportunity for face-to-face guidance;
- Be free at the point of use, with the costs of such provision made transparent;
- Make clear to every consumer exactly what is being offered, the limitations of the guidance, and what protection it gives consumers in the event of detriment;
- Be offered from at least 12 months in advance of the consumer’s stated retirement date; and
- Be co-ordinated with Government-sponsored guidance relating to long-term care.
(paragraph 186)
Chairman of the Treasury Committee, Andrew Tyrie MP said:
“Everyone we spoke to welcomed the pensions and savings reforms announced in the Budget, in particular the greater flexibility and choice that they offer to consumers.
“The ‘guidance guarantee’, announced at the Budget, is an important part of making sure that consumers benefit from increased choice. We will measure the Government’s proposals for the guidance guarantee against a set of principles to ensure their effectiveness.”
On new pensions products, and the role of the FCA
The market is likely to adapt, offering a new range of financial products for those approaching retirement. It is crucial that these products are not defective. Were they to be so, the reputation of the financial services industry, which has suffered severe damage in recent years from large scale mis-selling, would be further tarnished. (paragraph 144)
The FCA has now been given new powers to intervene early, in advance of detriment occurring. In practice, this will be extremely difficult to accomplish without creating other forms of consumer detriment. In particular, it will be essential to avoid stifling market innovation. The use of these new powers will be a major test of judgement-based regulation. (paragraph 145)
Andrew Tyrie commented:
“The pensions reforms are likely to lead to financial innovation.
“That innovation needs to provide products that are in the interests of consumers and which are sold responsibly.
“Following the financial crisis, and the mis-selling scandals, the reputation of the industry is under scrutiny.
“The FCA, with its new powers of intervention, will also be under the spotlight. This will be an important test of its commitment to develop judgement-led regulation. Consumers will lose from heavy handed regulation or the extension of the box-ticking culture that has bedevilled conduct regulation. This achieved little and often protected nobody. Effective regulations are badly needed, encouraging innovation, but the FCA must also act quickly to bear down on consumer detriment where necessary.”
On the future taxation of savings
Taken together, the changes announced in the Budget to ISAs, as well as the reforms to the taxation of defined contribution pensions at retirement, amount to a substantial increase in the flexibility available to savers. As this flexibility increases, ISAs and pensions will become increasingly interchangeable in their effect. In the light of this, the Committee recommends that the Government set out comprehensively the approach it intends to take to taxation of all forms of saving. This should include an examination of the merits of moving further towards taxing savings once, the scope for bringing closer together the tax treatment of ISAs and pensions, and the appropriateness of the present arrangements for the pension tax free lump sum. (paragraph 205)
Andrew Tyrie said:
“For too long, double taxation has discouraged some forms of saving. These reforms take us towards only taxing savings once.
“The Budget has enhanced flexibility for those saving, whether in pensions or ISAs. The Government should now look further ahead. The Mirrlees Review highlighted the complexity and distortions in the UK tax system’s treatment of savings.
“The Government now has the opportunity to build on its reforms and the expressions of cross-party support that they have attracted. In particular, there may be scope in the long term for bringing the tax treatment of savings and pensions together to create a ‘single savings’ vehicle that can be used—with additions and withdrawals—throughout working life and retirement. This would be a great prize. The cross-party support for these savings and pensions announcements offers the prospect of a more stable and healthy environment for pension and savings taxation. This can only encourage savings and reduce dependency.”
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