The document discusses the challenges of securing adequate retirement living standards for ordinary workers amid rising personal and public debt, diminishing capital supply, and an aging population. It critiques the current tax relief system on pensions, advocating for a more equitable approach to encourage savings. The proposal suggests eliminating inequitable tax relief measures and integrating ISAs into retirement planning to foster a culture of saving.

1. 1
A better deal for savers:
helping ordinary workers secure
decent living standards in retirement
with Rachel Reeves MP
29 May 2014
Michael Johnson
www.cps.org.uk

2. 2
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1970 1980 1990 2000 2010 2020 2030 2040 2050 2060
Impact of austerity
measures agreed
to 2017
99% in
2062-63
66% low
Ratio excluding
impact of ageing
population
(approx.)
Ratio including
impact of ageing
population
Central projection for Public Sector Net Debt to GDP (%)
We face a sovereign debt crisis
Source: OBR’s Fiscal Sustainability Report July 2013

3. 3
We face a personal debt crisis
Source: Bank of England
* Incl. credit cards, motor and retail finance deals, overdrafts and unsecured loans
Mortgages
Consumer
credit * Total
Personal debt £1,280 billion £159 billion £1,439 billion
Average debt per household £48,454 £6,018 £54,472
Average debt per adult £25,505 £3,168 £28,673
Interest paid per household - - £2,242

4. Savings (2012) and demographics
Population aged 65+
UK Japan
1950 10.7% 4.9%
2010 16.5% 22.6%
2050 22.9% 37.8%
OECD; National Accounts at a glance 2014. Definition for HNSR: the ratio of household saving (plus
the change in net equity of households in pension funds) to household disposable income.
Household net Net debt
saving rate as % GDP
Greece -14.6% 102%
Japan 0.8% 140%
United Kingdom 2.4% 69%
Italy 3.6% 113%
Netherlands 4.1% 42%
Spain 4.4% 60%
Canada 5.0% 59%
Ireland 5.2% 83%
United States 5.8% 100%
Norway 8.2% -167%
Germany 10.3% 50%
Australia 10.4% 27%
France 11.7% 70%
Sweden 12.2% -24%

5. 5
Ageing population / fewer workers per pensioner
+ Stagnant productivity growth
+ Rising interest rates (2015+ ?)
= Fiscal squeeze
+ Approaching saving tipping point
= Diminishing supply of domestic capital
Cost of capital to rise
We need a savings culture……but……
The squeeze is on

6. Tax relief, 2012-13
£270 billion of cash since 2001-02
Cost, £ billion
Up-front tax relief on employer contributions £21.3
Up-front tax relief on employee contributions £6.7
Tax-exempt 25% lump sum at retirement (approx.) £4.0
NICs relief on employer contributions £15.2
Tax foregone on investments held in pensions products £6.9
Total £54.1
HMRC; Table PEN 6: Cost of Registered Pension Scheme Tax Relief, February 2014

7. Tax relief: inequitably distributed
Income
distribution
% of all
contributions
% of total tax
relief
Corresponding
annual income*
Bottom half 16% 14% less than £24,000
Next 40% 35% 32% £24,001 to £51,000
Top 10% 49% 54% Over £51,000
100% 100%
Top 1% 15% 30% Over £100,000
Top 0.5% 10% 22% Over £150,000
* approx
Income tax is progressive, so tax relief is inevitably regressive
HMRC; Personal Incomes Statistics 2011-12, January 2014

8. 8
• Scrap all tax relief 50p per £1 subscribed
• Independent of taxpaying status
• Highly redistributive & simple
• Max. £4,000 from HMT: focused on first £8,000 savings
Tax relief: CPS proposals to boost effectiveness*
* Retirement saving incentives: the end of tax relief, and a new beginning, MJ, 15 April 2014

9. 9
• Scrap LTA
• Re-intro 10p rebate on dividends
• £100k IHT exemption on transfers to pension pots
• ?.......25% tax-free lump sum
Tax relief: quid pro quos
* Retirement saving incentives: the end of tax relief, and a new beginning, MJ, 15 April 2014

10. 10
• Capital crisis coming
• Industry lacks common purpose with consumers
• 80% of active managers not needed?
• Tax relief: the lowest hanging, juiciest fruit in Whitehall?
• Formally bring ISAs into the retirement arena……
………the Lifetime ISA
• What future private pensions?
Conclusion