Former chancellor George Osborne’s controversial drive to make pensions more like Isas is set to continue despite his exit from the Treasury, former pensions ministers Steve Webb and Ros Altmann have said.
Both told FTAdviser they believe such a policy would be disastrous for the long term savings of ordinary people, but that the will to keep pushing for the radical reform remained with Treasury ministers and officials.
Mr Webb singled out new chief secretary to the Treasury David Gauke - the department’s second-in-command - as being particularly in favour of the Isa model.
He also claimed Mr Osborne would have had “a team of civil servants who are still in place who will have the same sympathies, not least as they prepare the legislation for the Lisa”.
He said the new ministers, including chancellor Philip Hammond, were unlikely to have strong views on the subject, meaning the momentum was “likely to continue in support of the Isa approach, at least in the short term”.
However, Mr Webb said the Treasury would wait to see how the Lifetime Isa - due to be available from 2017 - was received, and then gradually “increase the scope and scale of it”, such as making it a valid option for auto-enrolment.
Baroness Altmann echoed Mr Webb’s view, saying seniors figures at HM Treasury were in favour of the Isa model.
She chose not to name names, but said a move to the Isas ‘tax, exempt, exempt’ (TEE) model would “destroy pensions” because it had “all the wrong behavioural incentives”.
In particular, she said making drawdown tax-free would encourage people to spend their savings too quickly and face penury in very old age.
“We are so close to getting a decent pension system, but I fear it is about to be derailed.”
She added she did know what Mr Hammond’s position would be on the Pension Isa.
FTAdviser asked a number of industry players whether they would approve of a move towards a Pension Isa. Most were hostile to the idea, saying it would bring yet more disruption to a system that is in dire need of stability.
John Walbaum, head of investment consultancy at Hymans Robertson, said he though Brexit negotiations would put radical pension reform on hold for a while. “But I think it is something Treasury will come back to,” he said.
“When Treasury looks at how much it would raise, it looks very attractive.”
But he said that was no basis on which to design pension policy.
However, he said – putting the disruptiveness of yet more pension change aside – the benefits and drawbacks of TEE versus EET was “not entirely neutral, but not that far away from neutral”.
Neil MacGillivray, head of technical support of James Hay, warned introducing a TEE model was dangerous because there was no guarantee that young savers would be tax-exempt when they began to draw down on their pension in decades to come.
james.fernyhough@ft.com
