By Harry Phibbs
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The Centre for Policy Studies this morning released a new report – Put the Saver First – written by pensions analyst Michael Johnson with proposals for reviving a savings culture in Britain. The paper challenges the retirement savings industry to reform itself – with lower prices and greater transparency – to avert tougher regulation.
The report says:
"The interests of the nation and the industry are not aligned. Ordinarily this would not be of great importance, but financial services are an exception. Not only does the industry directly benefit from an annual subsidy of over £30 billion (via tax relief), but the Treasury fields the consequences of industry failure, via welfare payments, made manifest by an under-saving nation.
Consequently, the industry has to change, dramatically. The guiding principle for this paper is that change would be more lasting if it were driven by the industry itself, rather than through intervention from another key stakeholder, the state. The industry is in the Last Chance Saloon of public opinion. It now has a brief opportunity (between now and 2017) to take a lead and resuscitate its reputation."
2017 could herald major state intervention (coinciding with the planned review of auto-enrolment and NEST). In the paper, Michael Johnson puts forward 104 recommendations for reform of the pensions industry and, argues that the industry should concentrate on giving customers what they want – which in 90% of cases is simplicity.
For the industry the report proposes:
1. An industry-wide DC pension pot consolidation service. As a “BACs for pensions” clearing house, it should facilitate the payment of contributions and transfer values, with a bridge across to NEST.
2. An annuities clearing house, in which all annuity providers participate. The annuity Open Market Option should be replaced by mandatory exercise through the clearing house, which
should offer a limited number of simple, standardised annuity contracts, plus a more tailored suite of enhanced annuities.
At present there is the wrong sort of regulation:
This paper suggests some guiding principles for regulation, describes the current regulatory framework and proposes that prudential oversight should be deemphasised. The blunt instrument that is (an ever-increasing volume of) classical regulation is totally unsuited to engendering trust, which is not created through regulation. A dramatically new approach to regulation is required, to usher in a period of regulatory enlightenment and innovation.
Among the proposals for the Government including "improving the effectiveness of the
£30 billion spent annually on tax relief." Reinstatement of the 10p tax rebate on dividends, infamously removed by Gordon Brown and other measures to boost savings among lower earners could be financed by scrapping higher rate tax relief. Also the Treasury should simplify the tax regime for investment products by ending the separate treatment for products with (usually cosmetic) embedded life insurance.
The full paper can be downloaded here.