The importance of a moment to account

The Institute of Chartered Accountants plead for reform of public accounting in the midst of economic flux

Sustainability, transparency and reform have been held up as the shining beacons of our economic recovery. Our politics, our budget and our ethos are placed back on drawing boards across the country in the quest to return the UK to its heyday of steady economic growth. The Institute of Chartered Accountants in England and Wales, however, offer some brief words of caution.

Whilst our wild ideas about the importance of spending or cuts, the role of elections and representation and the significance public or private sector investment are important, there are some basic changes which have to happen before they can make lasting change. We have to set our ideological angst and meta-debates to one side for a moment, and take a look at the books.

Architects of international financial reporting standards have responded to the crisis by reforming the information and presentation of accounts across the world. Britain seems to lack the political will to get behind this change, yet improved financial reporting would make the nation’s accounts more consistent with those of the fifty countries which have already adopted the new standards laid out by the International Public Sector Accounting Standards Board. Greater consistency and greater comparability gained from international financial reporting will help on the road to recovery by increasing confidence and transparency.

Better financial training for all public servants is an intrinsic part of this process, the ICAEW argue. This training, with a long-term change in attitude towards our accounts, will help to improve understandings of public sector finances and, with that, understanding of policy. Once our public servants, and the international community, can access accounts more consistently, we can report with greater confidence on the state of the economy.

Sustainability, transparency and reform have a right to be seen as a beacon of recovery. Passionate debates on the right course for the country need to be had but, for the sake of our understanding and the happiness of our accountants, let's take a look at the books first.

Dusty ledgers, sadly no longer the tools of accounting. Photograph: Getty Images

Helen Robb reads PPE at Oxford University where she is deputy editor of ISIS magazine.

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Stability is essential to solve the pension problem

The new chancellor must ensure we have a period of stability for pension policymaking in order for everyone to acclimatise to a new era of personal responsibility in retirement, says 

There was a time when retirement seemed to take care of itself. It was normal to work, retire and then receive the state pension plus a company final salary pension, often a fairly generous figure, which also paid out to a spouse or partner on death.

That normality simply doesn’t exist for most people in 2016. There is much less certainty on what retirement looks like. The genesis of these experiences also starts much earlier. As final salary schemes fall out of favour, the UK is reaching a tipping point where savings in ‘defined contribution’ pension schemes become the most prevalent form of traditional retirement saving.

Saving for a ‘pension’ can mean a multitude of different things and the way your savings are organised can make a big difference to whether or not you are able to do what you planned in your later life – and also how your money is treated once you die.

George Osborne established a place for himself in the canon of personal savings policy through the introduction of ‘freedom and choice’ in pensions in 2015. This changed the rules dramatically, and gave pension income a level of public interest it had never seen before. Effectively the policymakers changed the rules, left the ring and took the ropes with them as we entered a new era of personal responsibility in retirement.

But what difference has that made? Have people changed their plans as a result, and what does 'normal' for retirement income look like now?

Old Mutual Wealth has just released. with YouGov, its third detailed survey of how people in the UK are planning their income needs in retirement. What is becoming clear is that 'normal' looks nothing like it did before. People have adjusted and are operating according to a new normal.

In the new normal, people are reliant on multiple sources of income in retirement, including actively using their home, as more people anticipate downsizing to provide some income. 24 per cent of future retirees have said they would consider releasing value from their home in one way or another.

In the new normal, working beyond your state pension age is no longer seen as drudgery. With increasing longevity, the appeal of keeping busy with work has grown. Almost one-third of future retirees are expecting work to provide some of their income in retirement, with just under half suggesting one of the reasons for doing so would be to maintain social interaction.

The new normal means less binary decision-making. Each choice an individual makes along the way becomes critical, and the answers themselves are less obvious. How do you best invest your savings? Where is the best place for a rainy day fund? How do you want to take income in the future and what happens to your assets when you die?

 An abundance of choices to provide answers to the above questions is good, but too much choice can paralyse decision-making. The new normal requires a plan earlier in life.

All the while, policymakers have continued to give people plenty of things to think about. In the past 12 months alone, the previous chancellor deliberated over whether – and how – to cut pension tax relief for higher earners. The ‘pensions-ISA’ system was mooted as the culmination of a project to hand savers complete control over their retirement savings, while also providing a welcome boost to Treasury coffers in the short term.

During her time as pensions minister, Baroness Altmann voiced her support for the current system of taxing pension income, rather than contributions, indicating a split between the DWP and HM Treasury on the matter. Baroness Altmann’s replacement at the DWP is Richard Harrington. It remains to be seen how much influence he will have and on what side of the camp he sits regarding taxing pensions.

Meanwhile, Philip Hammond has entered the Treasury while our new Prime Minister calls for greater unity. Following a tumultuous time for pensions, a change in tone towards greater unity and cross-department collaboration would be very welcome.

In order for everyone to acclimatise properly to the new normal, the new chancellor should commit to a return to a longer-term, strategic approach to pensions policymaking, enabling all parties, from regulators and providers to customers, to make decisions with confidence that the landscape will not continue to shift as fundamentally as it has in recent times.

Steven Levin is CEO of investment platforms at Old Mutual Wealth.

To view all of Old Mutual Wealth’s retirement reports, visit: products-and-investments/ pensions/pensions2015/