Pension incentives – a foundation for change.

At the time of posting, Tom has already had a mammoth response

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If you are reading this on Tuesday Am 4th Feb, you can add your views but the numbers look consistent whenever I’ve looked. People think the taxpayer should be incentivising not subsidising saving.

Thanks to Tom for getting us this insight, it is of course what the Treasury were thinking when they launched their last consultation on tax relief – subtitled “an incentive to save”.

There may be a wide variety of reasons people prefer “incentive” to s”subsidy” but I suspect they can mostly be put in the “leg-up not hand-out” bucket.


Time for a concerted voice?

Since the general election, it’s felt like we’ve come out of a Narnian hibernation. Everyone is expressing the need for reform that has pent up in three and a half years of policy winter and the will for change is emerging on blogs and other social media rather than from Government.

It seems  we are ready to debate, though not yet ready to get behind one remedy for what we consider a broken system.

I hope that what will emerge out of this noise will be someone authoritative who will take personal responsibility for bringing consensus.

This will mean establishing, as Tom is doing, the basic principles. If we can agree that saving is an incentive, then that can be a touchstone. Similarly if we can agree (as Darren Philp was arguing) that the Government should have outcomes in mind , then we can think of the behavioural impact of changes on different savers and target the right outcomes.

Retirement saving does not happen in a vacuum, the impact of greater saving has to be viewed in the context of our benefits system, the cost of meeting the health needs of an ageing population and the wealth tied up in non income generating assets such as our houses.

Finally, we need to understand the impact of change not just on those in retirement (increasing) , but on those still working (decreasing). How can we best distribute the cost of retirement savings incentives? What levers are best pulled, and what released?


Let us go back to the 2015 consultation.

It is within the power of Government to create a system of savings incentives targets a certain set of outcomes , at a pre-agreed cost which is spread between various interested groups fairly.

But for this to happen we need the consensus to be created independent of the vested interests of the pensions industry.

If this debate is conducted properly , it will be conducted by people who can genuinely be thought independent, people who the public can trust and who parliament will respect.

Such people exist and they are people who are making themselves known on social media. They are talking amongst themselves because they know now is a time for change.

I very much hope that an independent consensus will emerge as a result of these experts doing the hard work needed to address the big questions being raised.

No one comes to the table without some baggage, but it is the job of leaders to ensure the cleanliness of the process so that whatever emerges from these discussions has value.

I think that the Government Consultation on savings incentives in 2015/16 is the starting point, that the questions asked in that document are still relevant five years on and that all that has changed since then, is the successful completion of auto-enrolment and enhancements in technology that give HMRC improved powers of implementation.

The long-term trends towards freedom of choice and away from collective solutions persist. The absence of support for those making life-changing choices about how they want their savings paid to them remains an issue.

Above all, the fundamental issue, identified by Tom remains. The tax system is currently subsidising saving for those who have money to save, it is not incentivising saving for the needy. We are actually excluding 1.7m of the needy from incentives through the net-pay anomaly while 50% of the cost of tax-relief , goes to 10% who need incentives least.


Pension incentives – a foundation for change

I had long thought that the answers would come from Government and that the voices of those outside of Westminster would not get heard.

My opinion is changing as I understand that Government does not have the resource to find those answers by itself and that there remain institutions set up and maintained by the private sector that can help resolve what appear intractable problems.

Of course there are conflicts (as mentioned) but there are ways of driving through conflicts where the will for change exceeds the inertia to retain. The case for reform of the current pension tax-relief system was well made by Tom McPhail in a letter he published and is republished here.

So strong is the case for reform, that I see it as inevitable. The exact shape of reform is down to Government to legislate , but the foundations for the Government’s decisions can be established by the people who are governed.

I suggest that now is the time to have a people’s cabinet – dedicated to establishing the foundations of tax-reform – speaking to Government as all great campaigning movements do, with respect and with authority.

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About henry tapper

Founder of the Pension PlayPen, Director of First Actuarial, partner of Stella, father of Olly . I am the Pension Plowman
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