George Osborne’s previous Budget ushered in a range of reforms for the retirement savings system, including the much-lauded move to give people greater freedom in what they can do with their pension pots. All eyes are now on the chancellor to see what comes next. 
Osborne will hold the first Conservative-majority Budget since November 1996 on 8 July and members of the finance industry have called for the chancellor to focus on the needs of the UK’s savers.
However, given the recent overhaul of the pensions regime, these calls are based around simplifying savings to ensure that more people feel comfortable preparing for their retirement without worrying about further upheaval being around the corner.
In the below article, FE Trustnet looks at what the experts want to see from Osborne on Thursday.
A summer Budget for savers
Brewin Dolphin has called on Osborne to use his speech to unveil a Budget that has the UK saver firmly in mind. The wealth manager believes that “endless tinkering” of the pension system has led to the “continual erosion” of the incentive to save.
Nick Fitzgerald, head of financial planning at Brewin Dolphin, said: “This chancellor has a reputation of pulling surprises out of his Budget day hat and he may use his new-found House of Commons majority to unveil changes above and beyond those contained in the manifesto.”
“The obstacles that currently stand – whether on inheritance or capital gains tax, imbalanced savings incentives or pension growth limits – must be removed to promote the culture of saving that is so badly needed in this country.”
Brewin Dolphin also offered advice to the chancellor on how to strengthen the UK’s savings culture.
Rob Burgeman, investment manager and divisional director, says plans in the previous Budget to lower the lifetime pensions allowance from £1.25m to £1m effectively penalises people for having a successful investment strategy and recommends replacing this with a simple cap on how much people can pay into their pensions.
Richard Harwood, divisional director of financial planning, also believes that government plans to cut pensions tax relief for people earning more than £150,000, by scaling back the tax-free allowance by £1 for every £2 they earn above that level, is too complex.
“It might sound politically attractive, but will be very costly to administer, particularly for final salary schemes,” he added.
“I would like to see more certainty and stability rather than messing about with the rules, so that individuals, employers and pensions providers can make long-term plans. If the governments learn from previous mistakes I would be surprised if this proposal was implemented or it was not significantly modified.”
A savings minister?
Tony Stenning, head of UK retail at BlackRock, says the appointment of Ros Almann as the new minister for pensions shows a “welcome commitment” to the issue of long-term saving but argues that the country could also do with a savings minister. 
While financial education in the UK is improving, BlackRock believes that it is “poorly co-ordinated and sends out mixed messages”. A consequence of this lack of progress is that people in the UK are still more likely to borrow rather than save for major purchases and do not feel confident investing, leading to an overdependence on cash.
Stenning says the creation of a savings minister would help to make the government’s savings agenda “more coherent”, as they could transcend departments and help to create a framework in UK where it is as easy to save as it is to get into debt.
“We believe it would not increase bureaucracy but would act as a way of streamlining the current system and depoliticising it, removing the habit of successive governments to tinker with the rules according to their short-term priorities. A savings minister could review the whole system and also look at the unintended consequences for savers of introducing new legislation across government,” he said.
“We believe this should help create trust in the industry. Savers, and by extension the savings industry, would have an advocate, a champion in the heart of government. This is not simply about pensions, but about cradle-to-grave savings and would incorporate everything from saving for a first home, to long-term care needs.”
“Saving benefits everyone. It ensures growth, stability and prosperity for the future of the UK and its people. It provides businesses with capital to grow, while ensuring that poverty in old age becomes a thing of the past and that people avoid the financial desperation brought by excessive debt. A failure to narrow the savings gap could adversely affect the UK’s GDP, so it is of critical economic as well as social importance.”
A long-term National Pensions Strategy
Jason Whyte, director in insurance at EY, says the industry is “still trying to surface for air” after the radical changes to the pension system by one major change that is expected to be announced on 8 July is reform of pension tax relief.
“Conservative policy is to taper the contribution limit from £40,000 to £10,000, starting at earnings of £150,000, but a simpler option might be a flat rate of pensions tax relief,” he said.
“First raised by the former pensions minister Steve Webb, a flat rate of 30 per cent would in one move give lower earners a bigger incentive to save, reduce the tax ‘leakage’ from high earners by closing the gap between the tax relief they receive and the (usually lower) tax they pay in retirement, and cut the overall ‘bill’ for pensions tax relief.”
But whatever changes are made to the pension system next week, Whyte urges to the government to make a “pledge of future stability” to prevent savers from worrying about further changes to the regime.
“Everyone needs time to get used to the new regime. Employers and the pensions industry need time to finish implementing the changes and refocus on meeting consumers’ needs. Consumers need confidence that the retirement they are saving for won’t be undermined by a government changing the rules yet again,” he said.
“We would like to see a long-term, cross-party National Pensions Strategy outlining what will be held firm and what might be changed. A 10-year commitment not to further reduce tax relief or increase taxation when funds are drawn would go a long way towards encouraging people to save.”
