MSE News Discussion: Calls for UK savings to be radically simplified

Former_MSE_Archna

This is the discussion thread for the following MSE News Story:

"UK’s savings regime needs to be made easier in order to encourage more people to set aside money."

Read the full story:

UK savings should be radically simplified says think tank

Paul_Herring

I see nothing in the report that is either so much simpler, nor so different to what's currently in place that would encourage more to save.


Annual contribution limit (we already have one of those) split between pensions and ISA's (no change there.)

The only changes are the limits proposed.

25% of fund tax free? We already have that.

Saving to others' pension funds? We already have that.

I see nothing different here, apart from messing about with the actual numbers.

opinions4u

UK’s savings regime needs to be made easier in order to encourage more people to set aside money.
The Centre for Policy Studies think-tank says long-term savings are overly complex, with multiple tax regimes that deters people from saving

I'm not sure it deters people from saving. Lack of money or a lack of will to save are probably more significant factors. But there is a case for change.

Pensions and Isa’s should work together and people should be given access to their pension before they retire. They should also be able to leave unused pension savings to their heirs tax-free.
The report proposes introducing a single, annual contribution limit of £45,000.

Within this limit, a maximum of £35,000 a year could be contributed to a pension – similar to the current cost to the Government of tax relief under existing pension savings allowances.

I've read this several times. I don't see how it's simple and I don't see how it would encourage more saving.

Pensions tax relief would be paid at the saver's marginal rate, while savings accrued in an Isa could be transferred into a pension and benefit from tax relief of 20%.

Nigel Peaple, National Association of Pension Funds director of policy, says: "We urge the Government to rethink the recent changes to pension’s tax relief, which will affect many others besides the high earners."

The Association of British Insurers (ABI) called for a new limit of £50,000 to be set as the maximum amount people could pay into their pension each year and receive tax relief at the highest rate at which they paid income tax.

The group said the limit would be easy for people to understand and simple to administrate.

It added that it would be seen more positively than current plans to reduce the amount of tax relief people earning more than £150,000 qualified for, which it claims undermines people's incentive to save.

While I encourage new thinking and think there's a case for the debate, in what way are any of these proposals simpler, fairer, or likely to increase the amount saved?

Under-16s would be encouraged to get in the savings habit at an early age, with a new Junior Isa. This would have a limit of £1,200 a year.

What's wrong with an R85?

artha

I admit to being as titled and may not have looked at things in great enough depth but I ask myself what is the long term goal of government in encouraging people to save? Is it so that individuals will have a better standard of living in later years or is it to give people the same standard of living with less contribution coming from the state whilst taxes and NI increase? The cynic in me says it's the latter. If it's the former then all well and good provided that this is a win-win for saver and government

baby_boomer

The report also suggests savers should be given a one-off opportunity to access up to 25% of their pension fund tax-free before they retire. Any money they did access would be deducted from the tax-free lump sum they could get on retirement.

That'll be so that the middle aged can pay off their mortgages when the with profits fund falls far short.

And so the youngsters can pay off their student debt.

Pity about the need to fund an ever long retirement .

Would this be the government equivalent of those dreadful ads about "unlocking your pension"?

The_MoneySavingKid

"The Association of British Insurers (ABI) called for a new limit of £50,000 to be set as the maximum amount people could pay into their pension each year and receive tax relief at the highest rate at which they paid income tax."

What is it with these limits?

People should be able to put much as they want into their retirement fund in any year, not told how much they can put away.

Paul_Herring

The_MoneySavingKid wrote: »

"The Association of British Insurers (ABI) called for a new limit of £50,000 to be set as the maximum amount people could pay into their pension each year and receive tax relief at the highest rate at which they paid income tax."

What is it with these limits?

People should be able to put much as they want into their retirement fund in any year, not told how much they can put away.

That's the limit for funds that get a tax rebate. There's nothing stopping you (either at the moment, or in these 'new' proposals) from making other provision for your retirement, however they will have to be made out of post-tax income, and the investments themselves may be subject to further tax.

LongTermLurker

The report looks garbage to me!

The Centre for Policy Studies think-tank says long-term savings are overly complex, with multiple tax regimes that deters people from saving

The report proposes introducing a single, annual contribution limit of £45,000.

And what, pray, do you do with the rest of your spare cash if you're lucky enough to have some? Doesn't look to encourage people to save heavily does it?

Within this limit, a maximum of £35,000 a year could be contributed to a pension

So that leaves £10k for the ISA then? Er... less than now? Very encouraging I'm sure.

The group said the limit would be easy for people to understand and simple to administrate

And "contribute as much as you earn" isn't simple enough to understand?? I earn £10k - I can save £10k... I earn £50k - I can save £50k... simples!

Maggie Craig, director of life and savings at the ABI, said: "An annual limit will greatly help simplify the current system of tax relief for pension contributions.

WAKE UP MAGGIE - there already is an annual limit, just not the one you have in mind!

People should no longer be forced to buy an annuity by the time they reach 75 and should be able to draw down their assets as they needed them, as long as £50,000 worth remained in the pot until they reach 75

and where does that figure come from then? Hardly guaranteed to pay an "adequate" income, so fairly arbitrary, no?

The report also suggests savers should be given a one-off opportunity to access up to 25% of their pension fund tax-free before they retire

And that will encourage saving? Surely being unable to rob the piggy bank forces you to save it???

In order to boost the number of people saving, the report says that couples should be able to contribute to each other’s pensions

My boss can contribute to mine, let alone my wife...

Workers could be automatically enrolled into an Isa, in a similar way as proposed for pensions

I fail to see the point. If you've nothing to spare, then you'll end up having bugg'r all in the pot at the end of the day.

And to think this think tank feels a need to exist. As Herring says, nothing to see here folks - walk on.

D1zzy

Annual 45K each into a S&S ISA - sounds good to me. Here's hoping....:)

Paul_Herring

D1zzy wrote: »

Annual 45K each into a S&S ISA - sounds good to me. Here's hoping....:)

... at the expense of not getting any tax back on contributions to a pension fund (which you can then take 25% of tax free) because you've used up the allowance.

Bear in mind that your ISA is made up of post-tax payments; your pension of pre-tax payments.

The difference is essentially 25% of any increase on your tax rebates you can get when you retire. (It's a tad more complicated than that - more so when it comes to what you actually might do with that 25%.)

General question to anyone who can be bothered to look at the original reports (since MSE seem a little lax in actually linking to copies) - is there any provision (as there is now) for someone to, say, save in an ISA up to near retirement, then move lump sums from ISA to pension to gain the income tax back if they decide the pension fund is the better deal, or are they proposing a hard £50/45K limit per annum?

D1zzy

Paul_Herring wrote: »

... at the expense of not getting any tax back on contributions to a pension fund (which you can then take 25% of tax free) because you've used up the allowance.

Bear in mind that your ISA is made up of post-tax payments; your pension of pre-tax payments.

The difference is essentially 25% of any increase on your tax rebates you can get when you retire. (It's a tad more complicated than that - more so when it comes to what you actually might do with that 25%.)

General question to anyone who can be bothered to look at the original reports (since MSE seem a little lax in actually linking to copies) - is there any provision (as there is now) for someone to, say, save in an ISA up to near retirement, then move lump sums from ISA to pension to gain the income tax back if they decide the pension fund is the better deal, or are they proposing a hard £50/45K limit per annum?

Should've said already retired -with current additional income from savings and investments - so the opportunity to shift everything at 90K a year into a tax free option still sounds pretty good.