Personal PensionApr 13 2016

Workplace Isa under fire for giving ‘mixed messages’

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Workplace Isa under fire for giving ‘mixed messages’

The brains behind the Lifetime Isa has defended his controversial Workplace Isa proposal, following concerns it risks further confusing consumers.

Michael Johnson, research fellow at the Centre for Policy Studies, was probed by MPs on the work and pensions committee today (13 April) about his recommendation a Workplace Isa should be installed to “sit inside” the recently-announced Lisa.

“It is early days, but I envisage we complement the Lifetime Isa with a Workplace Isa”, he said, meaning individuals could have a single savings vehicle “to serve from cradle to grave”.

Last week, insurance giant Aegon urged the government to give the Lisa a test-run before introducing the costly add-ons proposed by Mr Johnson.

Mr Johnson told FTAdviser the paper revealing the details of the Workplace Isa will be released next week. Under his fresh proposal, employer contributions would be locked in until age 60, whereas other contributions can be accessed before.

During the session in front of MPs, Mr Johnson was asked whether this risks giving the public mixed messages, particularly in light of the auto-enrolment regime launched in 2012.

But Mr Johnson denied this and said he had no wish to hinder the success of auto-enrolment.

“The Isa is not to replace the pensions world, it is an alternative. It is for the individual to choose if they want a pension or an Isa.”

He pointed out that employer contributions for auto enrolment will ramp up in 2018, meaning “it is vital the Workplace Isa is in place to discourage opt-outs”.

This comes after pensions minister Baroness Ros Altmann recently admitted constant changes to the UK pension regime has left savers “baffled and bewildered”.

One point of contention was over the tax structure of the Lisa, with Mr Johnson stating it comes under the exempt-exempt-exempt (EEE) model for basic rate taxpayers.

“It’s vital we disentangle the Lifetime Isa with tax-exempt-exempt (TEE), I have never proposed TEE,” he stated.

But Tory MP Richard Graham queried whether this assertion was misleading, given the £4,000 a year which can be paid into the Lisa comes out of taxed income.

Mr Johnson also said that if tax relief was scrapped entirely and the government moved towards a bonus-based Isa regime, then the Treasury would make considerable savings, adding “we may see additional saving taking place” with the Lisa, because the bonus is something “people can see” and therefore fuels enthusiasm for saving.

Ben Yearsley, cofounder of the Wealth Club, commented that the Workplace Isa seems massively complicated from a saver’s perspective. “The concept of employers being able to invest in an employee’s Isa seems sensible, especially as many higher earners have had the ability to invest in a pension severely curtailed.

“However, assuming it comes out of net rather than gross salary why should the employee then have it locked away until the age of 60?”

katherine.denham@ft.com