Pension ISAs face further industry criticism

On Monday, the The Institute for Fiscal Studies released its Green Budget paper, in which it stated that the move to ISA style pensions "has much more dramatic consequences for the profile of tax revenues and poses significant political risks".

Phil Loney, Group Chief Executive of Royal London, commented:

“Since last year’s Budget we, along with other market commentators have been engaged in a debate over the future of tax relief on pension contributions. The critics of the perceived unfairness of the current system, where 75% of tax relief goes to high and additional rate tax-payers, have won the intellectual argument and Royal London has been a leader in calling for change. However it has never been true that all of the reform options are better than the status quo. It is my belief that proponents of the “ISA-style" (or “TEE”) pension taxation are clearly thinking too short term.  

“There remains a considerable risk that "ISA Style" pensions, even with an incentive thrown in, will simply turn people away from long term saving. Savers will lose the certainty of a tax relief system which ensures their saved income is not taxed twice, and be thrown into an ISA-style system where they need to believe that future generations of politicians will not renege on the deal and tax their savings when they come to withdraw. Hands up anyone who really believes that?

“I strongly urge the Chancellor to build on his excellent record of introducing the pension freedoms by reforming the current tax relief system and not abandoning it. He should not take the huge gamble of introducing ISA style pensions, which would be reckless at a time when the numbers saving into a workplace pension are finally growing, following the successful introduction of automatic enrolment. This is not the time to turn the system upside down.”