Over half (52%) of those surveyed by the Institute of Chartered Accountants in England & Wales (ICAEW) believe that the current tax regime in the UK does not provide sufficient incentive for saving for retirement with nearly a third believing that it is a serious problem (29%).
To remedy the situation, 70% of the survey’s respondants believed tax breaks for long-term savings, equivalent to those for pension contributions, would give a greater incentive for people to save for their later years than the current tax regime. Surprisingly, only 37% believed that additional tax breaks for pension savings would help improve the culture of saving, showing that confidence in pensions is low. Other suggested measures include the reintroduction of pension tax credits and improvement, or indeed the removal, of the current annuity purchase arrangements.
The research also illustrates the trend away from Final Salary schemes, with 30% of respondents reporting that they had been closed to new members. However, despite the widespread criticism of new pensions accounting requirements (FRS 17/IAS 19), which have been hailed by many as the reason for final salary closures, less than 10% of respondents thought accounting requirements were an important factor influencing changes to final salary schemes, with many citing employer risk (61%) and cost (33%) as the real drivers behind this trend.
Compulsory employer and employee contributions, such as the scheme in Australia, were also deemed by over half (59%) to be a good idea. Compulsion is seen as the way to force complacent employees to take an active role in saving for their retirement as well as removing the disadvantages of those whose employers do not make voluntary contributions. Of the third (33%) who did not believe compulsion was the way forward, many believed it would remove the freedom of personal choice and would not provide the flexibility to take account of individual circumstances.
The ICAEW research also revealed that there is uncertainty regarding employee confidence in pension provision. Forty-five per cent perceive confidence to be high among employees whilst 43% believe it to be low.
In companies where members are expressing concerns about pensions, 60% believed that increased employer contributions would allay any anxiety while 46% believed that if employee contributions could be increased independently it would also help address concerns. Employees are however increasingly asking questions about pension provision. Common issues include pensions security, the range of choice of investments and lack of understanding of pensions in general.
Eric Anstee, Chief Executive of the ICAEW, said: “The pensions time bomb has been on the horizon for many years with long-term pension provision being affected by short-term government thinking and interference. Chancellor after Chancellor has whittled away our pensions and savings industry – once the envy of Europe. These results reveal how much needs to be done in order to ensure people can look forward to their retirement.”
Over 1,000 ICAEW members working in senior pensions roles were surveyed.