A Pension Isa could still be introduced by the government, the Association of British Insurers has warned, despite industry concerns the move would harm already low retirement savings.
Ahead of this year’s Budget it was widely anticipated a Pension Isa would be introduced.
Instead chancellor George Osborne announced the Lifetime Isa, which will offer a 25 per cent government bonus to help people under the age of 40 save for retirement or to buy their first home.
The new Isa will be introduced from April 2017 and up to £4,000 can be saved each year until the age of 60, when it must be used as retirement income or withdrawn to help buy a first home.
There is a 5 per cent exit fee for people wanting to withdraw funds from the Isa before the age of 60. Savers who exit early will also not get the government bonus.
But according to Ben Gaukrodger, manager for savings policy for the Association of British Insurers, the birth of the Lifetime Isa does not mean the idea of a Pension Isa has been killed off.
Mr Gaukrodger pointed to the upcoming referendum on Britain’s membership of the European Union, and a small majority for the government in the House of Commons, as reasons the chancellor pulled back from announcing a Pension Isa in this year’s Budget.
But he said there is “absolutely a chance” the Pension Isa will raise it’s head again in the Autumn Statement or next year’s Budget.
Steve Webb, head of policy for Royal London, said HM Treasury sources have told him the Lifetime Isa is not a Trojan horse but he joked “nobody said the Trojan horse was a Trojan horse.”
He said the government pulled the plug on introducing a Pension Isa because they were worried about “noisy losers” who would have been created by a change in pension tax relief.
But he added the Lifetime Isa is being used to trial the Pension Isa.
Mr Webb said: “They will see how it flies. If it is popular, lots of people take it out and they get used to the idea that this is how you save for your retirement you could see how it could be expanded.
“I think this (Lisa) is almost a dry run.”
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