Pension Isa would ‘destabilise’ workplace saving: Boulding
Moving towards a pension Isa would be counter-productive as it would destabilise workplace pension saving without offering a superior outcome for savers, an industry association has warned.
Adrian Boulding, policy strategy director at Tisa, warned that such a product could also result in limited future tax revenues.
He expressed this view in Tisa’s response to the Treasury’s consultation on tax relief in October, and said while the government needed to incentivise long-term saving, it should not tinker with the current system too much.
The response said that moving from the current exempt-exempt-taxed system under pensions to a taxed-exempt-exempt system such as an Isa, while providing a government top-up on pension contributions would raise some major issues.
According to Mr Boulding, while the concept of a pension Isa “strikes a positive emotional chord”, once the pros and cons are explained there was strong support for the existing EET system whereby incentives are received upfront.
Tisa has proposed a two-for-one matching system. Mr Boulding said: “A move to two-for-one matching would be more progressive, the switch benefitting lower earners at the cost of smaller pensions for higher earners.
“We urge the chancellor to move pensions tax relief to the same flat rate of 33 per cent for everyone. That would mean for every £1 you contribute to a pension, George Osborne adds 50p.”
Comparison of value of pension pot at date of retirement under different tax treatments
Basic rate in work, nil payer in retirement
Basic rate in work and retirement
Higher rate in work, basic rate in retirement
Higher rate in work and retirement
Additional rate in work and higher in retirement
Current EET
118%
100%
100%
82%
82%
TEE
94%
94%
71%
71%
65%
TISA 2-for-1
141%
120%
90%
74%
68%
Source: Tisa
Regarding the introduction of a possible Pension Isa, Andy Bell, chief executive of provider AJ Bell, said: “Our discussions with the Treasury do not suggest there is a foregone conclusion. There is a genuine desire to find the right outcome that meets the government’s objectives of simplicity, personal responsibility and sustainability.
“There has been no evidence presented that proves radical changes will encourage people to save more than they do today.”
Adviser view
David Smith, drector of financial planning for national advisory firm Tilney Bestinvest, said: “Some dissenters may still argue that a pension is not as attractive as an Isa as any income is potentially taxable. However, with 25 per cent of a pension fund being available tax free and by carefully using any available tax allowances, income can be taken relatively tax efficiently.”
