Time to look at the bigger picture

A recent theme of Government retirement savings policy has been to target initiatives at individuals in clearly defined demographic groups.

Between 2014 and 2015 we saw the announcement and introduction of the pension freedoms. The reforms, branded as the most significant change to pensions in a century, were aimed squarely at savers aged 55 and over. Whilst the prospect of the additional flexibility may encourage some younger savers to invest, it offers them little in terms of immediate benefit.

From 2016 to 2017 we’ve seen the announcement and introduction of the Lifetime ISA. We don’t yet know how successful the product will be. However, there is an argument that by combining elements of the ISA and pension savings framework, it represents the most radical savings innovation in a generation. This innovation is aimed squarely at savers aged between 18 and 40. It offers nothing to ineligible older savers.

When looking at these policies I have pondered on the Government’s objectives. Has any consideration been given to the bigger picture, or has the focus purely been on offering more to defined groups of people. When it comes to the pension freedoms, I’m sure that accelerating the tax take from decumulation also played a part!

For some time, AJ Bell has called for the Government to create an independent savings commission to de-politicise saving. Our hope is that an apolitical, or at least cross-party, commission would be in a position to look at the bigger picture and come up with proposals that work for all savers, rather than those within particular age groups.

The issues with developing policies for defined age groups are demonstrated when you consider another group who are acknowledged as suffering from a chronic problem of lack of retirement saving – the self-employed.

Auto-enrolment has done a great deal to improve the number of people saving into pensions in the UK. However, one of the groups that auto-enrolment has failed is the self-employed.

If we want to look at the ages of those most likely to be self-employed then figures produced by the Department of Business, Innovation & Skills in 2015 can help. Their statistics show the number of self-employed split into five year age bands. The three groups covering those aged between 40 and 54 are the three largest bands, and the only groups containing more than half a million individuals (the band covering those over 60 was larger but covers a much larger age range).

We have a position where the Government has acknowledged a problem with self-employed saving. The same Government has implemented two major savings initiatives that are of no immediate benefit to those aged between 40 and 54.Yet the largest number of self-employed individuals fall into this age range.

We must acknowledge that those currently excluded from the Lifetime ISA and pension freedoms still have plenty of scope to save – we can hardly call them the lost generation of retirement saving! However, it remains interesting that policy development has focussed so narrowly on particular demographic groups.

If an apolitical savings commission was in place I would question whether its recommendations would be as narrowly focussed. Its ability to consider the bigger picture is one of the strongest arguments for its creation.

Head of Technical

Gareth joined AJ Bell in April 1997 and, as the company’s first SIPP administrator, helped to establish what is now the Platinum SIPP. In 2000 he became the first member of the administration team for the newly launched Sippdeal SIPP (now AJ Bell Youinvest) and in 2006 set up AJ Bell’s technical team. Gareth is responsible for analysing regulatory and technical material and communicating this within AJ Bell and to the wider world through a variety of media.