Saving for later life with the Silver ISA

Proposal from the Silver Marketing Association to the House of Commons Work & Pensions Committee

The Silver Marketing Association was pleased to receive an invitation from The House of Commons Work and Pensions Committee to submit evidence to their current inquiry into how the Government can support people with saving and planning for retirement. This current inquiry is the third in a series of work that the Committee has conducted into protecting older savers. Submissions accepted by the Committee are limited in the length, so we cannot cover all the areas we would like to, but we will continue to engage with the Committee and the vital work they are performing.

Here is our submission and our proposal for the Silver ISA:

A recent survey of 1,000 people carried out by Opinium on behalf of Hargreaves Lansdown found that over one-third (34%) of people aged 45-54 have no plan in place for their remaining working years.

Some 42 per cent said they planned to continue in their current job and work full-time. A further 10 per cent said they would stay in the same role but move to part-time hours – only five per cent said they planned to stop work completely.

These findings point to a worrying lack of planning among those closest to retirement on how they plan to spend their remaining working years. The pandemic may well have played a part in this with the economic upheaval potentially causing chaos for people’s retirement planning as many older workers retired early after being made redundant.

Investment market volatility seen earlier in the pandemic has had an impact on people’s pensions causing some to put off their plans for retirement a while longer.

While this is encouraging for those with a workplace or private pension, for many who opted out, or didn’t meet the £10,000 minimum requirement for auto-enrolment, a State Pension may be their best option for a retirement income, but eligibility is not automatic.

State Pension is a contributory payment and In 2019, data from the Department for Work and Pensions (DWP) revealed that of the 1.1 million people who claim the new State Pension, just under 500,000 (44%) receive the full amount of £179.60 a week. So many will experience a shortfall and will be affected by their lack of contributions particularly since the start of the pandemic.

Those with a defined contribution pension – whether private or through work – will find their savings may have been hit quite hard as a consequence of the pandemic. The older age groups who are close to retirement may well have taken a bigger hit.

It is therefore right to be concerned that not all households have adequate pension savings for retirement, particularly when increased longevity is taken into account.

What can the Government do about this?

Apart from increasing pension contributions, the Government can improve outcomes for savers by proposing attractive saving plans which are designed specifically for the over 55s.

An ISA is a tax-efficient and attractive way to save money. Currently there are four types of ISA, two of which are skewed in favour of younger people with the Junior ISA (up to age 18) and the Lifetime ISA (for under 40s). That skewing would appear to be just the current iteration of a long trend of policy thinking geared towards younger savers: with the Help to Buy ISA (now closed to new savers) being yet another recent example.

As much as specific new products might help, it may be that an institutionalised mindset needs to change too. No-one would disagree with the view that younger people should save more, but this must not be the sole focus when serious issues exist at the other end of the age scale too.

Notwithstanding the need for wider Policy reform, the Silver Marketing Association proposes the creation of:

“The Silver ISA”

This would be available exclusively to people aged 55 and over, with the possibility of investing up to £20,000 per annum into this ISA within their annual ISA limit.

To encourage older people to invest in the Silver ISA, the Government would add a bonus of 25% up to a maximum of £1,000 per year.

Furthermore, the Silver ISA would not be subject to inheritance tax which would encourage older people to invest and not to withdraw money from the ISA, thus enhancing savings and creating a legacy for the next generation.

Key to the success of the Silver ISA would be a targeted marketing & communications strategy to promote its benefits, and which reinforces the importance of older people as valued members of society.