Lifetime Isas represent what a new pensions taxation system could look like, the head of retirement savings for Aberdeen Asset Management has warned.
In a video interview with Ellie Duncan, deputy features editor for Investment Adviser, Gregg McClymont, a former shadow pensions minister, said the government had given an indication of its intentions when it comes to pensions policy.
He explained: “When I talked about the ‘pensions death spiral’ in an Investment Adviser article recently, I was talking specifically about the UK’s occupational pension system, which is a bedrock part of the broader UK pension system.
“I was also concerned about government proposals, which seem to have been shelved at the moment, to move to a system of pension Isas.
“From the employer’s point of view, it seemed to me the incentives provided by the current tax relief system are crucial, incentivising employers to do more than the statutory minimum in terms of workplace contributions,” he stated.
“My worry is a shift to a different taxation system - to pension Isas - would not provide employers with the incentives they need to provide good quality pensions.
And in that context, we could see a further retreat from such employer-based provision, which is my concern.”
Mr McClymont said he was glad the government had not gone ahead with that proposal but warned this is still on the agenda.
“Indeed the introduction of the Lifetime Isa (Lisa) suggests the government is edging to that view of the world, where Isas play a much bigger role in terms of pension savings”, he said, adding: “With the Lisa we are beginning to see somewhat of what this new world would look like.”
Also, he said there was a wide variety of opinions over what a good pension system looked like, although quality and cost has improved among providers. Therefore, having a greater amount of choice could cause further complexity.
H cited demographics, individualisation and fiscal policy as barriers to pension saving. For example, there are massive “macro headwinds facing global governments” over providing state pensions.
These headwinds include ageing populations and the fiscal policy problems associated with growing numbers of pensioners, as well as a trend to people having more control over their savings, but without the commensurate knowledge over how to invest.
Mr McClymont added: “Evidence suggests individuals tend not to be investing as wisely over the long-term as institutions would, so this also presents a challenge to the pensions industry, not just in the UK but also across the world.”