Personal Pension  

P-Isa would be ‘death knell’ for life companies

P-Isa would be ‘death knell’ for life companies

If the government decides to opt to tax pensions in the same way as Isas are taxed, it would be the “death knell” for many life companies., Neil MacGillivray, head of technical support at James Hay Partnership, said.

The government’s green paper suggested a fundamental reform of the tax system is needed, and that pension contributions are taxed upfront, rather than on withdrawals: a ‘taxed-exempt-exempt’ system like Isas.

The government said this may allow individuals to better understand the benefits of contributing to their pension as the government’s contribution might be more transparent.

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Mr MacGillivray argued with pension freedoms having dramatically reduced the demand for annuities and, now the potential that personal pensions may be killed off, it would be the “final nail in the coffin for many”.

“Whatever the outcome of the green paper platforms are likely to be in the strongest position to benefit.

“With little new annuity business and no personal pension business it will be difficult for them to continue and they may close to new business and potentially sell the closed book.

“Platforms will be in a strong position to provide a taxed-exempt-exempt proposition as they already provide Isas.”

A spokesperson for Zurich UK Life said that while the cost of setting up any taxed-exempt-exempt regime would impose additional financial pressure on businesses of all types, the company’s first concern is for the impact it would have on individual savers.

The spokesperson said: “Investing into a pension from untaxed income is a powerful incentive to save for retirement. Scrapping such a valuable tax break would drive people away from long-term saving.

“We have called for the government to reinforce the value of up-front pension tax relief by introducing a 33 per cent flat rate that would be a fairer, simpler and more sustainable solution for people of all incomes.”

John Lawson, head of policy for retirement solutions at Aviva, did not agree with Mr MacGillivray.

He said: “In terms of the big picture on how this works I don’t think there would be much disruption at all. As far as I can see the market picture wouldn’t change, all you would have is a different tax incentive.”

Jamie Jenkins, head of pensions strategy at Standard Life, said: “Regardless of the outcome of the consultation on pensions tax, we still have a pressing need for greater levels of retirement saving in the UK.

“The government acknowledges the success of automatic enrolment as key to achieving this, so this will clearly remain central to the strategy.

“Any company with strong relationships with its customers and core strengths in investment and long term savings will be well positioned to embrace any changes.”

The Association of British Insurers declined to comment as to changes in pensions tax would affect life insurance companies.

ruth.gillbe@ft.com