Nucleus Financial Platforms, the largest independent adviser platform group in the UK, has called for greater political consensus around pensions and long-term savings policy, renewing its call for an independent commission in an open letter to the new Pensions Minister, Torsten Bell. It’s also been sent to other decision makers across the political spectrum.
The letter marks Nucleus’s third call for a non-departmental government commission, prompted by a lack of progress in the public’s confidence in securing a comfortable retirement and growing uncertainty surrounding the pensions system.
Recent pension withdrawals caused by pre- and post-Budget uncertainty, the proposed extension of inheritance tax (IHT) to retirement funds, changes to the lifetime allowance rules, and ongoing speculation around changes to ISAs have all contributed to an uncertain policy landscape, potentially discouraging savers from engaging with the system.
At a time when the government’s most urgent priority is growth, with significant changes to the UK’s pension system being made to achieve this, there is also an urgent need to foster greater confidence and knowledge in retirement planning.
Nucleus believes that the case for encouraging long-term savings is clearer than ever, as it would help inject more capital into investment, supporting both individual retirement security and broader economic growth.
This open letter follows the publication of the second study of the Nucleus Retirement Confidence Index, the group’s annual survey of consumer sentiment towards retirement. The report found that the majority of UK adults were still not confident that they’ll have enough money, alongside a widespread lack of preparedness for retirement and the crucial need for financial education and advice.
Andrew Tully, Technical Services Director at Nucleus and author of the letter, said: “It’s never been clearer that the UK public needs to start planning and saving for later life much, much earlier. But they need support from a pensions system that is consistent, stable and encourages long-term saving. Automatic enrolment was a recommendation by a Pensions Commission reporting in 2004 and 2005, which has been a great step forward in encouraging more people to save for their retirement.
“However more needs to be done and we firmly believe that establishing an independent savings commission could again make balanced recommendations to encourage long-term savings, while promoting greater consistency in pension and savings rules
“The government clearly has a focus on boosting economic growth and is looking at the role pension savings can play in this. We firmly believe that their growth agenda will have more chance of succeeding if people feel confident to save and invest for their future.”
A full copy of the letter follows:
By email to: Torsten Bell, Pensions Minister
”Dear Torsten
Proposal to establish an independent long-term savings commission
Congratulations on your appointment as Pensions Minister. We are looking forward to working with you and your office towards providing good outcomes for those saving towards their retirement.
Nucleus is one of the largest, independent investment platforms in the UK. We help over 250,000 customers manage over £100bn of their wealth, exclusively through independent financial advisers. We take our responsibility as the custodian of customers’ money very seriously. As such, we believe the UK needs greater political consensus around pensions and long-term savings, to help more people save more for their retirement in an environment of trust and stability.
One way to achieve this would be to establish an independent long-term savings commission. The aim for this non-departmental public body would be to review the regime for UK pensions and long-term savings and make recommendations accordingly. Its existence should make it easier to gain cross-party support for proposed changes and engender more stable pensions and long-term savings policy. And ultimately give more confidence in retirement.
Over the last two years, we have conducted customer research, The Nucleus UK Retirement Confidence Index. Via YouGov, we seek to assess whether people have confidence they’ll be able to retire comfortably. Our research clearly – and predictably – highlights those with defined benefit (DB) pensions are most confident. But we know DB is in sharp decline following most private schemes being closed to new joiners or bought out over the last twenty years, and there’s a rapidly growing reliance on defined contribution (DC) pension provision. We’ve evidenced that those relying solely on DC pensions are much less confident of their financial future.
Automatic enrolment is one key policy that has been a huge success in getting more people to save for their retirement, within the DC environment. This policy was proposed by an Independent Pensions Commission reporting in 2004 and 2005. Perhaps at least partly because it was proposed by an independent body, the introduction of auto-enrolment had from outset, and continues to have, wide cross-political party support.
While auto-enrolment has successfully created millions of new savers, it’s widely agreed that people are not saving anywhere near enough. The complexity of retirement and tax planning involved in turning a pot of money into a retirement income can’t be overstated. Added to that people need to decide when and how to use money held in other assets such as ISAs, investments and property, alongside pension savings.
A key area highlighted within our research is the desire for pension savers to have trust in the long-term savings market and have a stable tax and policy environment. Pensions are a long-term investment, and over many years, under various different governments, there have been constant changes and tinkering to the pension tax rules which deter people from engaging with the pension system and negatively affecting their confidence.
The consultation around the inclusion of most unused pension funds and death benefits within the value of a person’s estate for Inheritance Tax purposes from 6 April 2027 – which has just closed – is the latest example of a very significant change in pension tax policy.
If Government proceed with including pensions within the estate for IHT purposes, it will drive significant changes to long-term savings behaviour.
Firstly, it is likely many more people will start to withdraw greater amounts from their pensions at younger ages, and then throughout their later life. Encouraging greater pension withdrawals – which may not be sustainable over the individual’s lifetime – runs contrary to work which FCA has undertaken to encourage more people to withdraw a sustainable retirement income. The Government has recognised this as an issue and Phase two of the Government’s Pensions Review aims to assess retirement adequacy.
As people withdraw greater amounts at younger ages this increases the likelihood of people falling back on State benefits later in life. Many will also have less capital wealth to cope with the costs of long-term care and may need greater State support than would previously have been the case.
Secondly, including pensions within the IHT environment is likely to discourage people from making pension savings. Changes such as this are likely to further erode confidence in long-term saving and discourage people from saving towards retirement. Behaviour around the 2024 Autumn Budget highlights the problem which can arise when savers are faced with the prospect of constant changes to pension policy. Many consumers decided to withdraw tax-free pension commencement lump sums shortly before the Budget, due to widespread rumours that this benefit would be significantly reduced.
While we acknowledge it is unwise of people to act on speculation, the lack of stability and the regular changes which people have witnessed helps drive this type of poor behaviour. I don’t believe it is in the interest of consumers, the pension industry or the Government for people to make ill-advised rushed decisions like this.
In addition, there is ongoing speculation around changes to Individual Savings Accounts (ISAs). ISAs have been a huge success since they were introduced in 1999. But we’re in danger of ISAs becoming too difficult and complex for people to understand. And, perhaps more importantly, many of the restrictions caused by having multiple different variants puts barriers in the way of customers and the ability for them to simply and easily move from one contract to another as they move through their lives towards, and into, retirement and as their experience of savings develops
It’s for these reasons, and others such as the future of the state pension system, that we believe the creation of an ongoing, independent long-term savings commission is needed.
I’m more than happy to meet and discuss our research and thoughts in more detail, along with our CEO, Richard Rowney. Please do get in touch if you have any questions or if there is anything we can help with.
Yours sincerely,
Andrew Tully“
