Members of the financial services industry have responded critically to proposed features of a ‘Workplace Isa’ unveiled by the Centre for Policy Studies today.
Research fellow at the think tank Michael Johnson, who is the man behind the newly-announced Lifetime Isa, today (22 April) published a report listing his proposals for a Workplace Isa, a scheme he is urging the government to introduce under the auto-enrolment regime.
The proposed product would sit within the Lifetime Isa, which was announced in the March Budget and will offer a 25 per cent government bonus on contributions when it i is launched next April.
If the government accepts the proposal, savers who use the Workplace Isa would be able to contribute up to £10,000 a year until the age of 60, when they can withdraw funds free of tax. Savers would not be allowed to access funds before 60.
However, some industry figures have reacted scathingly to the Centre for Policy Studies report.
Iain Mills, Zurich’s UK operational taxes director, said the Workplace Isa is a “sure-fire way” of adding more complexity to the retirement landscape, create confusion and deter people from making longer-term savings.
“It would cause further disruption to the industry at a time when we need stability as auto-enrolment embeds,” he said.
Mr Mills said moving to a completely new product structure could mean companies face large costs, with employers needing to auto-enrol new staff aged over 40 into a pension, while offering a choice of all three retirement income vehicles to those under 40.
According to today’s proposal, both the Workplace Isa and Lifetime Isa would require savers to lock away their pension until aged 60.
Mr Mills said this would create a two-tier system, with some people potentially able to retire at 55 while others work five years longer.
“We would urge the government to think carefully about any further significant reforms,” he said.
Matthew Harris, director of Dalbeath Financial Planning, said: “I think this is the worst financial sector idea I have seen this year.”
“It would be totally unfair to limit any government bonus system to employees, never mind auto-enrolled employees,” he said.
“Sole traders, limited companies with directors but no employees, and people not in work at present, cannot morally be excluded from such a scheme just on the basis of administrative convenience.”
He said small employers are “still reeling” from the administrative cost of implementing auto-enrolment, adding “we can’t ask them to become Isa providers too”.
Mr Harris added the idea of housing one Isa within another is “just too confusing to even contemplate”.
“The Centre for Policy Studies is supposed to think the unthinkable, not think the incomprehensible.” Blair CannBlair Cann, senior partner at M Thurlow & Co, said: “I find it difficult to say very much positive about this idea.
“Looking at the suggestions I am reminded of the camel being a horse designed by a committee.”
Mr Cann said placing taxed employer contributions into an employee’s Isa obscures the difference between Isas and pensions, adding this will “only confuse”.
He also said not allowing withdrawals until age 60 is “frankly inexplicable”.
“I think the essence of retirement planning is to keep certain options open but make it as simple as possible. Bearing in mind the relative complexity of retirement planning as it stands at the moment this could make the whole area a nightmare.
“The Centre for Policy Studies is supposed to think the unthinkable, not think the incomprehensible.”
However, Claire Walsh, IFA at Aspect 8, was broadly positive about the initiative, suggesting it would encourage people to save and make savings products more accessible.
“But the caveat is it’s not better for everybody, particularly if you already have a property or you’re a higher rate taxpayer.
She also disputed whether the move towards Isas would destroy pensions and said people are getting “hung up” on this. “A pension is just a tax wrapper; it’s just a way of saving money.”
katherine.denham@ft.com
