Isas will replace pensions as the core product for retirement saving in the future, even though tax-relieved pensions would be a better model, a poll of intermediaries at the Corporate Adviser summit found. By Gill Wadsworth
Following a debate between research fellow at the Centre of Policy Studies Michael Johnson and Unison head of pensions Glyn Jenkins, 64 per cent of delegates agreed that Isas will eventually replace pensions as the preferred long-term savings vehicle, versus36 per cent who believed they would not.
But asked whether an Ica-centric future was a good idea for the UK, 80 per cent thought it was not, compared to 20 per cent that supported the idea.
Arguing in favour of doing away with pensions, Johnson said Isas were fairer for individuals and cheaper for the government. “The net cost to the Treasury in tax relief is £39bn and that is a figure that will not go away for the government.”
Johnson argued that the tax relief had gone ‘straight into the arms of fund managers’ who made up ‘the second most over paid and opaque industry’ in the nation.
He said the Exempt Exempt Taxed structure failed to encourage people to save and called on government to ditch the current regime in favour of a Lifetime Isa system that was more generous and flexible. He called for a doubling of the government bonus in the Lisa to 50 per cent, for savings to be allowed from birth and for greater access to savings, except those from employer contributions, which would be tied up until age 60.
“We need a genuine lifetime Isa; it should go from cradle to grave,” Johnson said.
However Unison’s Jenkins said Isas were not long-term savings vehicles and the Lisa limits meant it would provide an inadequate amount on which to retire. He also said a switch to TEE would not raise any money for the government from his members, adding the current system was broadly cost neutral to Unite members, who paid £571m in tax, and who received £564m in reliefs.
He also pointed out that in the same way that in the past individuals had left organisations after 5 years to get their hands on their short service refunds, savers would be tempted to take their money out of their lifetime Isa before retiring, leaving them with nothing for later life.
Jenkins said: “The Lisa has a maximum savings amount which isn’t very high and whatever way you take it, it isn’t going to get you very far.”
But Jenkins agreed the tax system does need a ‘significant overhaul’, and proposed a 33 per cent rate of relief across the board. He argued
Arguing in favour of maintaining pensions as the government backed retirement savings model, Standard Life head of pension strategy Jamie Jenkins argued that auto-enrolment was testament to the vehicle’s success.
“More than six million new savers are now saving and they are doing so into a thing called a pension,” he said.
Jenkins argued that savers ‘didn’t care’ what the vehicle was called, they just wanted to save for retirement.
He said the industry faces the most difficult phase of auto-enrolment as millions of small employers come under the regime, and moving the goalposts now would be damaging.
Royal London’s business development manager Jamie Clark called on government to delay the introduction of Lisa until all employers had completed the auto-enrolment process to avoid competition between the two offerings.
“Having Lisa at the same time as auto-enrolment could confuse consumers,” Clark said.