With all eyes on the Autumn Statement, here’s a conundrum. Both the government and Labour rightly want more money diverted into UK markets, but potential moves to encourage pension companies to invest more in UK assets risks missing half the story. The dual track challenge is how we win the hearts and minds of individual savers, and none of the noise around the Autumn Statement suggests we are anywhere close to addressing this.
Incentivising UK pension saving
The truth is that over successive parliaments we have created disincentives for money to be invested in pension and savings pots, depriving UK markets of an obvious source of capital. The road back will take time, but there are some important steps that would signal a real ambition to build a culture of saving and investing that is going to become increasingly vital in the years to come.
Stamp duty on UK shares is an obvious place to start. With the exception of the AIM market, both retail and institutional investors are penalised for buying British, and yet can invest in the US without this penalty. That’s as illogical and disproportionate as it is economically destructive.
Creating a nation of shareholders
In contrast, we have created a culture where home ownership is all too often seen as the only route to financial stability. From stamp duty holidays under Labour in 2010 and again in 2020 under the Conservatives, there are now reports that Jeremy Hunt is considering plans to reduce stamp duty on property purchases. A nice to have, certainly. But imagine if UK investors were given the same consideration on UK share purchases. It might not win many headlines, but it would be an important first step and signal that the government sees share ownership as a habit worth supporting.
Simplifying ISAs and removing the lifetime allowance
abrdn has campaigned for a simplification of the ISA regime for some time and we are hopeful that some progress may be forthcoming in that area. Having to make a choice between several different types of ISA wrapper is a huge barrier to entry, with an ISA regime perilously close to heading down the same road as our notoriously complicated pension system.
Rumours of an additional ISA allowance dedicated to buying British shares won’t move the dial for the vast majority of people who are nowhere close to the full £20,000 allowance. We need more ambition. The Chancellor has acknowledged this in principle by scrapping the lifetime cap on pensions by April 2024.
The removal of the lifetime allowance would bring much needed simplicity, but perhaps the toughest conversation is actually the simplest – we need to talk about pension contributions. –Stephen Bird, CEO of abrdn.
Stephen Bird, Chief Executive Officer
Grasping the nettle of higher pension contributions
We have argued that in order to avoid a future retirement crisis, we all need to be saving more. We have proposed doubling payments into defined contribution pensions as a policy that could make a difference, on a phased basis. There’s no doubt that the politics of this is difficult, but there aren’t many people in the industry who don’t believe that higher contribution levels is a nettle that will need to be grasped at some point.
The UK’s mass intergenerational transfer of wealth has barely begun. How that wealth is put to work is another area that policy makers would do well to dwell on.
It is up to government to incentivise the behaviour it wishes to see. Where else will long-term cash for the UK economy come from, if not long-term savers in the UK?
A version of this opinion piece first appeared in the Mail on Sunday (19 November 2023)