Steve Webb sounds Help to Save warning

Published on

A former pensions minister has has warned that the government’s ‘help to save’ scheme could be the wrong choice for low-paid workers compared with saving through a workplace pension and could lead to accusations of mis-selling.

Steve Webb, the former Liberal Democrat MP who was pensions minister during the recent coalition government, is now Royal London’s director of policy. He pointed out that with a contribution to a pension you may get a matching contribution from your employer, often on a pound-for-pound basis; this compares with the 50p per pound top-up under the government scheme after two years;   many large employers offer to match pension contributions made by their workers.

You also get tax relief on pension contributions, saving 20p in the pound for a standard rate taxpayer; there is no indication of tax relief on contributions into ‘help to save’. Pension saving eventually leads to a 25% tax free lump sum, unlike other forms of saving;

In addition, your Universal Credit is boosted when you increase your pension saving (because your disposable income has fallen); it is not clear yet if contributions into ‘help to save’ will boost Universal Credit.

Webb pointed out that while it is true that pension savings are ‘locked up’, whilst ‘help to save’ cash is accessible, older workers can access their capital from the age of 55 so may want to think particularly carefully whether ‘help to save’ would be the best option for them.

Webb said: “It is welcome that the government is looking to encourage people to save, but it needs to be careful that people are not incentivised to make the wrong choice with their money. Money put into a pension often attracts a matching contribution from an employer plus a tax relief contribution from the government and can entitle you to higher tax credits.

“While both short-term and long-term savings are important, low-paid workers with spare cash should think very carefully before assuming that the ‘help to save’ scheme is the best deal for their money. It would be unfortunate if this initiative turned into a new mis-selling scandal, with workers discovering they could have got a better deal from a pension.”

COMMENT ON MORTGAGE SOUP

We want to hear from you!
Leave a comment and get the conversation started.
You need to register to post, so please login or sign up below.

[tds_create_account btn_bg_h="#000000" f_text_font_family="global-2_global" show_version="" tdc_css="eyJhbGwiOnsiYm9yZGVyLXJhZGl1cyI6IjUiLCJkaXNwbGF5IjoiIn19"]

Latest articles

Guardian claims payouts rise 48% to record £31.7m

Guardian paid almost £31.7 million in life, terminal illness and critical illness claims during...

Royal London pays income protection claim before customer pays first premium

Royal London has paid an income protection claim to a customer who became unable...

Novello joins OPDA as it prepares AI-led surveying platform

Novello Chartered Surveyors has joined the Open Property Data Association as the surveying firm...

Virgin Money raises selected mortgage rates and launches new 60% LTV deals

Virgin Money is increasing selected residential and buy-to-let rates from 16 September while withdrawing...

Clydesdale to raise residential product transfer rates by up to 0.20%

Clydesdale will increase selected residential product transfer fixed rates from Wednesday 16 September. The lender...

Latest publication

Other news

Guardian claims payouts rise 48% to record £31.7m

Guardian paid almost £31.7 million in life, terminal illness and critical illness claims during...

Royal London pays income protection claim before customer pays first premium

Royal London has paid an income protection claim to a customer who became unable...

Novello joins OPDA as it prepares AI-led surveying platform

Novello Chartered Surveyors has joined the Open Property Data Association as the surveying firm...