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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
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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
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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
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%
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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
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
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
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• 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
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• 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
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