Pension reform, ISA simplification and lower taxation should top the Chancellor’s priority list in the Spring Budget, says Fidelity International.
With just days to go until the Chancellor unveils his fiscal plan, Fidelity has urged the government to focus on pension reform, including the development of the pensions dashboard and increasing the level of pension contributions being made.
It warned that the government’s proposal for a pension ‘pot for life’ would radically change the UK pensions market and questioned whether it would enable better outcomes for typical members or deliver the policy ambitions put forward.
Fidelity’s own research suggested 65% of employees like the idea of giving savers the opportunity to choose but would most likely remain with the pension provided by their employer, while 50% said they would feel concerned about knowing the responsibility for choosing their workplace pension rests with them. A similar number (51%) of employees also agreed that they worry it could widen the pension gap between those who are financially confident and those who are not.
James Carter, head of platform policy at Fidelity International, said: “Worryingly, the proposals have the potential to undermine the role of the employer in supporting engagement in pensions and the achievements of automatic enrolment. Since its introduction, automatic enrolment has revolutionised saving. ‘Pot for life’ proposals could be harmful to those whom automatic enrolment was designed to benefit.
“We need to stay focused on the successful delivery of other initiatives, such as the development of pensions dashboards and turn soonest attention to increasing the levels of pension contributions being made.”
Fidelity has also urged the government to look at ISA simplification, stating that complexity around investments “destroys confidence” and leaves individuals missing out on opportunities to strengthen their short and long-term financial position.
“Further proliferation of ISA types can create confusion for investors but also can limit the economies of scale that providers can offer. This can stifle innovation and worse, can raise costs for end investors. Simplification and certainty of tax treatment can allow both savers and companies to better plan and manage the products,” said Carter.
Carter said simplification of the ISA regime and a shift from a cash savings culture into long-term investing could be achieved by combining stocks and shares and cash ISA products, as well as improving the ease of transfers.
Carter also said that reports of a ‘British ISA’, allowing savers an additional £5,000 to their ISA allowance with money directly invested in UK-listed companies only, would be challenging to deliver.
Finally, Fidelity has called for lower taxation on investment to support the UK equities market. The investment and retirement savings firm said it supports the Government removing the burden of stamp duty in the UK which significantly increases transaction costs, reducing velocity of trading and thereby hampering liquidity.
Fidelity said changes to dividends in the 1990s have also reduced the attractiveness of investing in UK equities for pensions, with demand impacted further by continuous tinkering with allowances, reliefs and tax rate.
“Investing in listed and unlisted UK could be made more attractive to a wider number of people through tax incentives, such as simplifying capital gains tax and /or reintroducing indexation to encourage longer term investing. We would encourage consideration of a lower tax rate for UK dividends,” added Carter.
Main image: lucas-davies-iP8ElEhqHeY-unsplash
