2. Registration and refreshments

3. Welcome and introduction Paul Nowak Deputy General Secretary, TUC

4. Tim Sharp Policy Officer, TUC

5. Michael Johnson Research Fellow, Centre for Policy Studies

6. What future for workplace saving?
Pension v ISA
What future for workplace saving?
27 June 2016
Michael Johnson
Research Fellow, Centre for Policy Studies

7. Lifetime ISA: key features
18 to 40
Bonus £1 for every post-tax £4 saved, to 50
Max £4k p.a.
< 60 withdrawals for first home (max. £450k)
Other: 5% penalty, loss of bonus and growth
60+ withdrawals tax-free (ISA-like)
Lord Turner’s Pensions Commission: “Since the whole objective of either compelling or encouraging people to save, and of providing tax relief as an incentive, is to ensure people make adequate provision, it is reasonable to require that pensions savings is turned into regular pension income at some time.”
Treasury review of annuities stated that the fundamental reason for giving tax relief is to provide a pension income. Therefore when an individual comes to take their pension benefits they can take up to 25 per cent of the pension fund as a tax-free lump sum; the remainder must be converted into a pension – or in other words annuitised.

8. Lifetime ISA vs. pension
To create £1,000 net of tax in retirement:
(20% / 20%)
Gen Y’s perspective**
57% welcomed LISA
15% prefer pension
28% no interest in saving
* Income Tax when working / Income Tax in retirement ** Gokana survey of 1,000 aged 18-35
Flexibility pre-55

9. Lifetime ISA: concerns
5% penalty: practicalities?
401k-style loans?
Regulation: not part of private pension market
Charge cap?
AE opt-out risk
58% no material impact
38% modest impact
2% significant impact
Aon Hewitt survey of 600 pensions industry professionals
Guard against complacency Risk management
Current policy based on unrealistic assumptions about ordinary people’s abilities to make sensible choices, and could create “horrendous complexity” and a sector that required “ever more regulation”.
“A decade ago, the Pension Commission’s vision of pension system centred around the rebuilding of the second occupational pillar as a mass savings vehicle, placing the workplace at its heart, accepting the reality of individual inertia, harnessing it for the public good and compelling employers to engage.
She said the flexibility of Isas, in combination with pension freedoms, would require consumers to make choices that were far beyond their expertise, and thus open the door to poor decision making.
“The economic behavioural assumptions behind that approach are significantly different from those underlying the Pension Commission’s recommendations, which were that there are inherent behavioural barriers to people making rational long-term savings decisions,” she said.
It boils down to ideology ???
Have pensions become the vehicle to host a battle between different ideologies ?
What is the role of the state ?
How far should it go in protecting the individual?
Who determines what is best for the individual?
How to accommodate both given that F&C is now here? Intro defaults
Tackle iniquitous industry behaviours
She added that, by giving consumers freedom to do whatever they wanted with their pensions, the government had brought about “the separation of tax advantaged pension savings from any requirement to secure an income stream in retirement”.
“Be radical in recommending how the interest of savers can be protected, where the system of behavioural bias on a weak consumer side mean conflicts of interest and lack of transparency in the market, rather than relying solely on ever more regulation and horrendous complexity,” she said.

10. Workplace ISA to head off AE opt-out risk
Lifetime ISA
Workplace ISA
Post-tax employee contributions
+ 25% bonus
+ growth
Post-tax employer contributions + 25% bonus + growth
AE legislation X
No access until 60
Tax-free thereafter
Lifetime ISA withdrawal rules
Scrap NICs relief to fund bonus: visible to workers

11. Lifetime ISA: next steps?
1. Start at 6 weeks + £500 bonus (access 18+)
2. Double bonus to 50% Not a tax relief
AE: (4% + 2%) + (3% + 2%) + (1% + 4.5%) = 16.5%
3. Double cap to £8k
4. Default fund
5. Decumulation: risk pooling…….“auto protection”
6. Dashboard ready
Stock dividends default

12. What future tax relief?
Inequitable and confusing
ISAs: popular

13. Conclusion Who is EET / pensions for? Conundrum £40k AA irrelevant
Pension model broken
LISA: to facilitate change…..scrap all tax relief
Expensive, inequitable, incomprehensible, illogical, incompatible with F & C
Lifetime ISA…..cradle to grave
50p / post-tax £1, £K cap, scrap LTA
Simple, highly redistributive
Chameleon: saver in control
AE Workplace ISA for employer contributions
Who is EET / pensions for? Conundrum
£40k AA irrelevant
Society is shaped by the significant majority, which EET ignores
Illogical: cash out of ISA at 54, into pension pot + tax relief, then eligible for MTBs, @ 55 get TFLS, back into ISA
Ineffective…Evidence: existence of “savings gap” and need for AE
Fiscal and behavioral ballet

14. Baroness Jeannie Drake Labour peer and former member of the Pensions Commission

15. Discussion: Michael Johnson & Jeannie Drake Chaired by Nigel Stanley

16. Event closes Followed by tea and cakes