Richard Harwood: A policy wishlist for a more secure financial future

FOR the last 250 years, irrespective of who has led the Government, Brewin Dolphin has stood for a constant set of principles that enable individuals to enjoy the rewards of their work and the benefits of the risks they have taken in savings and investments; have access to the value that can come from investment and use the value they have created to prepare for their long-term future.

These ideas power our mission to help people prepare for their futures. They also have wider social value, and we would wish to see these priorities reflected in government policy.

Extend financial education in schools: We believe that proper financial education is key to the future economic health of the nation. We are in danger of raising a generation of children addicted to short-term, high-interest debt as a means of satisfying consumer desires in a world where they are likely to be unable to afford to buy their own property. We believe the Government should foster an industry partnership with schools, using a co-ordinated approach with business and local education authorities, and including careers advice and work experience.

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Encourage savings for higher education: Our children are being born into a world where they are very likely to incur significant debt to gain an education and will face becoming part of the new Generation Rent.

They need our help to make their financial future more secure. We believe that one way the new Government can help is by ensuring that Junior ISAs (JISAs) attract the same 25 per cent uplift as Help to Buy ISAs for first-time homebuyers, if the funds are used to pay for university fees.

Cap pension contributions, not growth: We believe that the new Government should reform the lifetime allowance to limit the total sum that can be contributed with tax relief into a pension fund, rather than capping the market value of the fund. The current system tends to penalise investment success and limit the rewards for putting savings up as risk capital for investment in equities (business). It also particularly affects those who start saving early and who are the most active in doing what the Government wants us to do – providing for our own retirement.

Accelerate mandatory auto-enrolment contributions: We believe the new Government should aim to increase auto-enrolment pension contributions to 10 per cent by 2020. While the current one per cent per annum contribution is a good starting point, individual contributions need to be considerably higher to be meaningful for retirement. For an example, we need look no further than the Australian pensions system.

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A 30-day cooling off period prior to pension pot withdrawal: Pension freedoms will give people access to a large sum of money without any expertise as to how best to manage this to meet their retirement needs and expectations, including tax-efficient drawdown. We believe that anyone considering withdrawal of their pension pot should be required to seek advice and there should be a mandatory 30-day “cooling off” period before withdrawal. From the day you instruct your pension provider to pay out your pension fund, there should be a requirement for the provider to send you a guidance document, explaining typical pitfalls.

Capital Gains Tax changes: We believe that it is important to reform Capital Gains Tax (CGT). Its current structure means that investors are, essentially, paying tax on inflation. In the current low inflation environment, this may be less of a concern.

However, even modest rates of inflation, compounded over a long period, can erode the relative purchasing power of money. It seems inequitable that any attempt to keep pace with this should be taxed. A structure where short-term gains are essentially taxed as income, while longer-term gains attract a far lower rate of CGT, can only encourage what we should all desire – a focus on long-term investment.

Modernise inheritance tax: Increase the threshold and reduce the time limit on lifetime gifts from seven years to five years. The inheritance tax (IHT) threshold of £325,000 has not been reviewed since 2009 – if only inflation was taken into account since then it would now be around £400,000. With the average house now costing £272,000, many estates are subject to this tax. We believe that the new Government should increase the threshold for IHT and, in addition, reduce the time limit on lifetime gifts from seven years to five years.

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We call upon whoever forms the next government to back policies that support savers throughout their lifetime, teach children the financial basics from a young age, encourage people to save for their children’s higher education and their own retirement, focus on long-term investment and make it easier for people to pass on their assets to their children.

Richard Harwood is divisional director of financial planning at Brewin Dolphin in Leeds.

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