As we head towards the end of the year the industry begins to focus on tax-efficient planning and the amount of ‘subsidy' given in tax breaks comes back in the firing line.
A couple of months ago the Association of Christian Financial Advisers (ACFA) called for a new tax relief on ‘regular’ savings which it believes should be in the region of 10%.
In true Christian fashion, it believes we need another tax relief to encourage a ‘change in our culture of spending to one of saving for the future.’
I find it hard to disagree with something like that.
The ACFA is trying to react to the 36% of retirees who apparently live alone and need to carry on working to make ends meet, compared to the broader retired worldwide population of 20% who continue in employment.
Is working past the retirement date so bad? For many retired people, the interaction with workplace colleagues and customers is as valuable as the money, particularly if you live alone.
We have an odd attitude to work in this country sometimes. I do not want to stop work when I am 65, I just do not want to have to work quite so hard.
More important than all of this is the issue of tax breaks, and the growing list of products that currently get a handout from the Treasury.
The current estimates of ‘subsidies’ from government for financial products of one description or another is £30bn-£35bn annually.
Now, if you wanted to be radical in terms of helping reduce the nation’s debt, there could be a moratorium on tax breaks for the next three to four years.
At Investment Week’s Fund Management Summit in October, tax breaks were keenly debated by a number of attendees, including T.Rowe Price’s Robert Higginbotham, suggesting there are better ways of encouraging people to save.
Financial education, and simplicity and transparency of products is clearly one (favoured by Higginbotham), while Phillip Blond, who runs the think tank ResPublica, had a more radical idea.
He suggested removing pensions relief and instead using the money to do a simple matching of contributions into retirement pots. So if you save a pound, rather than giving you tax relief, the government simply matches your pound with another pound.
This would effectively simplify the current system of employer matched pension contributions, and is not that far from the current trend to cap higher rate pension contributions in various ways.
As Blond says, despite the growth in tax breaks, the number of people saving for retirement has dropped.
Does more tax relief equal more saving? No, it equals more confusion, and less saving. Surely tax relief should be available only where there is real capital at risk?
Lawrence Gosling is the founding editor of Investment Week. His views are his own, any comments to him at [email protected]
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