The UK must reform its savings system, making saving money a bigger incentive for consumers, a new report reveals. The UK Conservative policy studies think tank the Centre for Policy Studies revealed recently that the current savings system in the UK is too complicated, which can cause many consumers to neglect their savings accounts or ISAs that they may need to grow their retirement funds.
The report suggests that there should be a combination of the pension regime with the ISA regime, set an overall limit to contributions at £45,000, and also give consumers an option to access up to 25 per cent of their pension funds prior to their retirement.
The report continues to comment on strategies for encouraging saving, stating that consumers should not be penalized by high tax rates whilst passing on any untouched savings accounts to their heirs.
Another point of contention for the Centre is that of requiring consumers to buy an annuity on the event of their turning 75 years of age. Instead of the annuity, the think tank made the suggestion that consumers should be permitted to, when required, draw down on their assets as long as they have a minimum of £50,000 in assets in their pension fund by their 75th birthday.
In a related measure that the CPS believes will drive children under the age of 16 to start and maintain their own personal savings, the Centre made the proposal of a “mini-ISA” that would operate independently of any taxation scheme and offer a limit of £1,200 on annual contributions.
The Association of British Insurers, a trade organisation consisting of insurance companies in the UK, has called for a new limit of £50,000 limit to be imposed on the amount of funds that are eligible to be deposited into a pension fund on an annual basis. The ABI states that it would be a great help in simplifying the current tax relief system in regards to contributions made into pension funds.
Maggie Craig, the director of life and savings for the ABI, agreed with the determinations made by the Centre for Policy Studies, stating that there is an urgent need for the UK to foster a more healthy culture regarding savings practises in consumers.
Many economists have commented that consumers are simply not putting aside sufficient funds during their lifetimes to build a suitable retirement fund.