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&#39Revenue plan will mean Isas first, pensions later&#39

Inland Revenue proposals to relax payments into pension schemes means people will pay into an Isa first and a pension later, taking advantage of the best tax relief, say industry experts.

IFAs predict that the Revenue&#39s proposal to allow contributions of 100 per cent of salary with an annual cap of £200,000 up to a lifetime contribution limit within a lifetime limit of £1.4m into a pension in any year will push the development of wrap accounts combining Isas and pensions. They say the wrap accounts will allow the movement of money from one fund to another when it is most tax-efficient.

Lower-rate taxpayers could pay into Isas initially and switch money to their pensions if they become higher-rate tax- payers later, getting tax relief at the higher rate.

Money Marketing understands that technology companies and IFAs are planning to roll out wrap accounts to accommodate Isa to pension switching within six months.

Taxbriefs chief editorial consultant John Housden says: “This will encourage the trend towards wraps that drip money from Isa to pension when it is most efficient to move them.”

Speaking at the Taxbriefs conference in London last week, Pensions minister Andrew Smith said: “I am relaxed if people choose Isas as an alternative to pensions as long as they know what they are doing. The financial services industry will come up with innovative new products to allow diversity in the portfolio of pension provision.”

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