Reforming the System

As the UK emerges from a recession which has ravaged the finances of millions of people and the national government it is into an economic climate which is not conducive to people who are looking to save. The Bank of England base rate of interest is historically low and will stay there for the foreseeable future pulling the interest rate of many savings accounts down with it.

The problem doesn’t end there, however. Many pension funds were operating with significant black holes before the start of the recession, now, with events like the oil spill in the Gulf of Mexico decimating BPs share price and having a knock on impact on pensions across the country, pension funds are in an even worse condition.

It is not particularly surprising then that a major think tank, the Centre for Policy Studies has said that the current savings system is far too complex and doesn’t do anything to encourage people to save for the long term. The first proposal of the think tank is bound to raise eyebrows as it has proposed combining the pension and ISA regimes with an overall contribution limit of £45,000. It has also suggested allowing people to access as much as 25% of their pension fund before they reach the retirement age.

In addition to the points mentioned above the think tank offered a number of other solutions including pension savings to be passed along tax-free, to their inheritors. It also proposed the creation of a mini ISA with an annual limit of £1,200 designed to encourage young people to get into the habit of saving early.

The Centre for Policy Studies is not the only group which has proposed amendments to the pensions system in the last few weeks. The Association of British Insurers called for a new limit to be imposed on the amount that people can pay into a pension each year. The ABI said that with an aging population and the strain that pensions puts on the public finance the system should be overhauled to make sure that people save enough money during their working life to see them comfortably through their retirement.

For the moment the government has not commented on the suggestions of either group, and with spending cuts likely to be the highest item on the government to-do list, it looks like the best solution for the time being is still to do the best you can to find a good rate on a savings account. Despite popular reports they are still out there, Santander are offering some excellent deals on savings accounts at the moment and are a good place to start your search.