A single Lifetime ISA for everyone should be created with all tax reliefs on pension contributions being scrapped, a leading figure at the Centre for Policy Studies (CPS) has proposed, according to an article published by the CPS. Research Fellow Michael Johnson said the opportunity has come for a radical overhaul of savings after the Chancellor launched a consultation into the future of the pensions tax regime in July.
Mr Johnson believes all tax reliefs on pensions contributions should be scrapped, along with the Lifetime Allowance, as a simplification measure. Here’s the majority of his idea:
“What should replace private and occupational pensions? We now have an opportunity to replace a ludicrously complex retirement savings vehicle with a fairer, more cost effective, simpler and transparent arrangement. Last year, I proposed a single Lifetime ISA for everyone, to be included in the auto-enrolment legislation. Allocated at birth, it would serve from cradle to grave, signalling the emergence of a lifetime savings agenda.”
Each post-tax £1 saved (irrespective of source, that is, including employers’ contributions) would attract 50p from the Treasury, up to an annual limit of, say, £4,000. This is double the rate of incentive that basic rate taxpayers currently receive via tax relief, and a total of £12,000 is more than adequate savings capacity for almost everyone. Treasury and post-tax employer contributions should be locked in until retirement (perhaps with income and capital growth); thereafter they could be accessed in the form of a tax-exempt ISA Pension.
An annuity, perhaps for a minimum of ten years, fuelled by the 50p incentive which, being flat rate, would address today’s fundamental conundrum that because Income Tax is progressive, tax relief is regressive, is grossly unfair. And it is patently failing the next generation.”
Last year the Centre for Policy Studies published proposals to abolish all Income Tax and employer NICs relief on pension contributions, to be replaced by a redistributive 50p incentive per £1 saved, paid irrespective of tax-paying status.
What do you think of the CPS’ ideas? Is this the way forwards for our pensions and savings?