abrdn is calling for a focus on stability, simplicity and social engagement in the budget. Alastair Black, head of Savings Policy at abrdn, comments.
We are calling for the Chancelor to introduce a range of measures that will give consumers confidence to invest – helping achieve the government aim of increased investment in the UK. These changes would support;
• Stability- greater confidence that plans consumers make now will not be undermined by future changes
• Simplicity- better understanding of how attractive investment can be protected from unnecessary tax
• Social engagement- greater ownership and engagement by consumers with their existing plans.
The delivery of these measures as a package could make a real step change in confidence and engagement in investing by ordinary people.
To achieve this we recommend:
2. Change tax bands in line with inflation
• The fixing of tax bands – or lowering in real terms – while it has an impact on immediate tax for consumers that year it risks a much more alarming impact on consumers for the long term.
• The fixing – in particular on the personal allowance and higher rate tax threshold – risks undermining confidence in planning for retirement. For pensioners in particular, the compounding effect of more of their income falling into ever higher bands makes this one of their biggest risks to net income.
2. ISA simplification
• To encourage investment let’s keep things as simple as possible. The ISA has a fantastic brand but we could look to simplify further. We would encourage the government to remove all complexity and have one ISA with all investment options.
• The best way to encourage more saving in the UK is to encourage more to invest at all.
3. Fix Dividend and Capital Gains Tax
• Please return limits to what they were pre April 23 to avoid this unnecessary complication for the majority.
• We are in the process of reducing these allowances to ¼ of what they were pre-April last year. This means ordinary people with modest investment risk getting caught by the tax. Only £12,500 in the FTSE at an assumed dividend rate of 4% will be caught.
• Unnecessary complexity is just going to put people off investing even if in practice it may not affect many.
4. Simplification of and raising limits on IHT
• Please review allowances to make them simpler to understand, equal for all and raise to a level that it affects the risk and not the masses.
• This has been a bit of a political hot potato with lots of speculation. Saving and investing for family is as important as for yourself. We need stability and simplicity here too.
• It needs to be done in a way it does not risk it all being reversed by a future government.
5. Accelerate process to member choice in auto enrolled pensions
• Auto enrolment is a fantastic success in harnessing apathy to ensure people get started.
• The issues are that it embeds lack of engagement. In this one key change pensions will no longer be “my employers” but “mine”. This could be as seismic a change as pensions freedoms in getting people to care about and “own their pension. Increased ownership leads to increased engagement generally with long term investing.
• At the same time, we have to make sure the burden does not fall on employers so the government needs to accelerate looking at a centralised framework to facilitate distribution of payments.
