Household finances: income, saving and debt inquiry

31 July 2018

The Treasury Committee has published a unanimously-agreed report on household finances which includes recommendations for a fundamental reform of pensions tax relief and the abolition of the lifetime ISA.

The report states that there is a widespread acknowledgement that tax relief is not an effective or well-targeted way of incentivising saving into pensions and that ultimately, the government may want to return to the question of whether there should be fundamental reform. However, the Committee also says that the existing state of affairs could be improved through further, incremental changes and that in particular, serious consideration should be given to replacing the lifetime allowance with a lower annual allowance, introducing a flat rate of relief, and promoting understanding of tax relief as a bonus or additional contribution.

The inquiry received strong criticism of the Lifetime ISA (LISA) over its complexity, its perverse incentives, its lack of complementarity with the pensions saving landscape and its apparent lack of popularity with the industry and pension savers. The Committee recommends that government should abolish it.

The report highlights that in promoting the LISA to retail investors, the government has not been clear enough that those withdrawing their money early lose not only the 25 per cent bonus but also a fraction of their capital. In this respect, the standards of disclosure on the website fall far below those expected of regulated firms.

Commenting on the Report, Rt Hon. Nicky Morgan MP, Chair of the Treasury Committee, said:

"Many households are facing challenges that are putting pressure on the health and sustainability of their finances. Over-indebtedness, lack of rainy day savings and insufficient pension savings are some of the weaknesses in the household balance sheet identified in this inquiry.

The Committee’s report makes a series of recommendations for the government to consider that would help households ensure that their finances are as resilient as possible.

Whilst financial service regulators and guidance bodies have important roles to play, the government should not pass the buck to them."

The report also says that there is an urgent need to bring the self-employed into the automatic enrolment pension system as there is growing concern about the number of self-employed, including ‘gig economy’ workers, who are not covered. The Committee recommends that government should consider making use of self-assessment and national insurance contributions to auto-enrol the self-employed.


The full report ‘Household finances: income, saving and debt’ is available on the UK’s parliamentary website.