PensionsSep 16 2015

Support for pension Isa depends on tax, study shows

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Support for pension Isa depends on tax, study shows

Public support for an Isa-style pension saving system evaporates when the tax implications are explained, research from Aviva has found.

In a survey asking which system of tax incentive for pension contributions they would prefer, 41 per cent of people opted for an Isa-style system where contributions were paid from taxed income, but withdrawals in retirement were tax free.

But when it was explained to them that using the Isa-system would mean paying more tax, that figure fell to just 23 per cent.

Under an Isa, 100 per cent of contributions are subject to income tax and NI, while under a pension, NI is not payable on employer contributions and income tax is payable on only 75 per cent of the benefits withdrawn.

Andy Briggs, chief executive for UK & Ireland Life at Aviva, said: “Our research again shows that people are confused.

“Pensions and the tax system around them can be difficult to understand and that can act as a barrier to people saving more for their retirement.”

In August, David Robbins and Dave Roberts, senior consultants and pension policy specialists for Towers Watson, said the most likely outcome of the government’s Green Paper into pension taxation would be a move to an Isa-style regime.

Adviser

Roy Blacker, founder and senior partner of West Yorkshire-based LifePlanning Solutions, said: “The pension Isa idea seems to be selling an old message: ‘give people what they want to hear’.

“But people will lose out if there are pension Isas. As for people on low pay, tax relief on a pension might be even more important for them. I think this sort of product may end up driving down contributions as people do relish the value and security and tax relief given to them by the company pension scheme. It is also a retention tool for companies.”