The New chancellor’s top 5 savings priorities
With a stonking Parliamentary majority, the new chancellor’s top 5 savings priorities are a key part of Kier Starmer’s mandate to pursue savings reforms set out in Labour’s manifesto.
The party has been crystal clear throughout the campaign it will prioritise economic growth and ‘wealth creation’ in government.
The new chancellor’s 5 top savings priorities are not just about tax; however, with a series of reforms already in train, issues requiring attention from different government departments and reviews are promised.
Brits will hope the chancellor practices what she preaches regarding retirement policy and delivers at least some certainty over the next five years.
Labour’s pensions review and the need for stability
Although Labour’s manifesto was relatively light on detail, its ‘Plan for Growth’ document published in January provides an insight into what the key areas of focus are likely to be for the new government.
A pension review has been promised, with the aim of improving outcomes and encouraging greater levels of investment in UK plc.
The latter will likely mean continuing the ‘Mansion House’ agenda started by the previous government, which has focused particularly on boosting private equity holdings in occupational pension schemes.
According to Labour, UK pension funds and insurers held 39% of shares listed on the London Stock Exchange at the turn of the century.
By 2020, they held just 4%. Pension schemes hold 50% of their assets in equities in the US, compared to 27% in the UK.
Any new chancellor will always be tempted to tinker with pensions taxation, but it is crucial that any reforms in this area are focused on the long term and encourage more people to save and invest for their future.
Simplifying and supercharging ISAs
A new government with a fresh mandate after the election will have a tremendous opportunity to deliver lasting reforms that benefit savers and investors.
The fact that Labour has committed to ISA simplification is a huge positive, but the new government needs to be radical to deliver genuine benefits to millions of Brits.
AJ Bell has long campaigned for the ISA landscape to be simplified by combining the best features of the existing six types into a single ‘One ISA’. As a first step, the government should look at merging cash and stocks and shares ISAs, the two main ISA products investors use.
As part of this review of ISAs, policymakers should also consider supercharging the Lifetime ISA by scrapping the exit penalty and increasing the minimum property limit from £450,000.
Maintaining the advice guidance boundary review momentum
Making ISAs and pensions easy to understand is just part of the challenge – it is also vital to improve the help available to people by improving guidance and encouraging more people to take regulated financial advice.
The advice guidance boundary review initiated by the Treasury and the FCA, in particular proposals to enable more personalised ‘targeted support’ guidance, has the potential to be a game-changer. More helpful guidance, higher take-up of regulated advice and more straightforward products could provide the foundation for a saving and investing revolution in the UK.
The fact Labour has already explicitly stated its support for the advice guidance boundary review is highly encouraging and should mean that these plans are pushed through without severe delay.
Connecting people with lost pension pots
Automatic enrolment has been a success story so far, dramatically boosting the number of people saving for retirement. Those reforms require an upgrade to boost minimum contributions post-election, but there is also the mounting issue of ‘lost’ pension pots to tackle.
Around £27 billion of retirement money is estimated to be ‘lost’ in the UK, partly because each job move can create a new auto-enrolment pension pot.
Reforms to create pensions dashboards, which will allow people to see all their retirement pots in one place, should make a big difference.
The timetable has been delayed multiple times, so it is crucial that the new government proceed with the planned introduction of dashboards.
Read why your mid-30s is the time to take your pension seriously
Tackling HMRC’s tax troubles
Over a decade after former Chancellor George Osborne made the bombshell pension freedoms announcement in the March 2014 Budget, the tax system that governs flexible retirement withdrawals remains faulty.
The latest official figures reveal that over £1.2 billion has now been repaid to savers who were overtaxed on their first withdrawal and who filled out the relevant HMRC form to claim their money back.
In the 2023/24 tax year alone, a record £198 million was repaid to people who were clobbered with an unfair—and often unexpected—tax bill.
More broadly, HMRC desperately needs some serious investment.
A recent National Audit Office (NAO) report revealed taxpayers spent an astonishing 798 years on hold to HMRC in the 2022/23 tax year, and the situation is likely to become even more strained as frozen thresholds and cuts to dividend and capital gains tax allowances drag more people into the taxman’s clutches.
A Freedom of Information request by AJ Bell shows that the average wait time to talk to someone at the tax office has quadrupled in a decade, from four minutes in 2012/13 to well over 16 minutes in 2022/23.
The new government will face difficult choices regarding how it spends its limited resources, but ensuring the tax office is fit for purpose must be a priority.
