AJ Bell chief executive Andy Bell has written to Chancellor Philip Hammond and Pensions Minister Richard Harrington calling for the creation of a non-political review body, similar to the Turner Commission, to assess pensions saving incentives in the UK.
The Pensions Tax Commission would be tasked with recommending what, if any, reforms are needed to the existing pension tax relief structure. Changes should only be made if they meet the four key principles outlined by the Treasury in its consultation on ‘Strengthening the incentive to save’, namely that any reform should be:
- Simple and transparent
- Allow individuals to take personal responsibility for ensuring they have adequate savings for retirement
- Build on the early success of auto-enrolment in encouraging people to save more
- Be sustainable
The Commission’s recommendations could form the basis for a lasting, cross-party settlement on pensions tax relief, and should come with a pledge not to make any further changes for at least 10 years.
Over three quarters of financial advisers that AJ Bell spoke to about the idea agreed that a 10 year freeze on changes to pensions tax relief would encourage people to save more via pensions.
In addition, AJ Bell wants to see the ISA system simplified, so all the current variations – including Cash, Stocks and Shares, Junior, Innovative Finance, Help-to-Buy and Lifetime – are merged into one product. 62% of advisers told AJ Bell that they think the ISA system is becoming too complicated and difficult for people to understand.
Any Bell, chief executive of AJ Bell, comments further: “Pensions tax relief has become hideously complicated in recent years, putting people off saving for retirement. Furthermore, Budgets and Autumn Statements create huge uncertainty, with rumours of radical pensions tax relief reform more often than not bubbling beneath the surface before the Chancellor takes to the dispatch box.
“This not only undermines confidence in the system - it affects investor behaviour and costs the Treasury money. We reckon cash piled into pensions ahead of this year’s Budget for fear of further cutbacks to tax relief costs the Exchequer £1.5 billion in additional tax relief.
“Establishing an independent Pensions Tax Commission would demonstrate the Government’s commitment to delivering stability for hard-working savers during these turbulent political and economic times.
“It could form the cornerstone of a lasting settlement on pensions tax incentives and give savers the confidence to make long-term plans, confident the goalposts won’t be constantly shifted.”
On simplifying the ISA system, Bell says: “ISAs have been the savings success story of the past decade, but the plethora of ‘brands’ with different limits and clauses attached risks undermining one of the product’s key strengths – simplicity.
“Bringing the various ISA products together into a single product with a single name would help bring an end to this creeping complexity.”
Please contact hannah.purslow@ajbell.co.uk if you would like a copy of the letter.