Chancellor Philip Hammond recently said: “now isn’t the time for lots of small changes. This is a time for consistency, preparation and steadfastness.”
The government needs to follow through with this commitment and heed its own advice by immediately halting the slide towards complexity in investment and savings.
The current over-complication, exacerbated by too much tinkering around the edges by previous governments, is stifling innovation by giving incumbent players a major advantage over those seeking to disrupt the status quo and offer savers something different.
Even more importantly, though, complexity gives many in the UK retail investment industry the excuse they need to charge exorbitant fees. The problem of complexity shouldn’t be boiled down to simply being a nuisance – it directly hits the wallets of UK savers.
It has been well documented that British people don’t invest enough and miss out on billions by keeping their savings in cash in poor-value and low yielding savings accounts, a phenomenon that is exacerbated by today’s low rate environment. But even for those that do invest, billions are frittered away paying for advice on how to navigate the UK’s almost indecipherably complex system.
Only 10 per cent of the UK adult population has a Stocks & Shares Isa, despite the fact that all the available evidence suggests that long-term exposure to markets is the key to securing a better retirement.
Right now in the UK, it is harder to get people to invest because not only do they face the problem “how should I invest my money?” but the question “how do I optimise it for tax?”.
We have first-hand experience in seeing this because we have UK and German clients. Germans don’t face the problem of complex tax optimisation so they are more confident when investing without an adviser. In the UK, however, tax optimisation is so complicated that too many people feel they have to seek the help of an adviser even if their financial situation isn’t complex.
This means paying high fees for advice and most people simply can’t afford that – and even if they can, the fees are an unnecessary burden on the return of their investment.
We are therefore calling for the government to make a number of changes in today’s Autumn Statement.
- Drop the proposal to introduce the Lifetime Isa – adding a new layer of complexity isn’t the solution.
- Scrap tax relief bands and replace them with a single fixed level of 20 per cent for all investors.
- Do away with complicated tax wrappers and replace them with a single wrapper that rewards people for investing for the long term.
Above all, we believe it is imperative that the government stops complicating the system. Every government seems to come up with something new; but each “innovation” only causes more complexity.
Simplification is the key to get Brits to invest for their retirement. But more importantly, simplification would give British investors a better deal. They are too used to paying high fees for advice on how to navigate the quagmire of today’s legislation, and these fees mean that they will continue to miss out on returns.
We hope that the government can act decisively so that the UK public can wave goodbye once and for all to the exorbitant costs of investing.