A new workplace Isa should be introduced at the same time as upfront tax relief on pension contributions is abolished, influential think-tank the Centre for Policy Studies says.
Senior research fellow Michael Johnson says the logical extension of the Government’s pension reforms is to replace the current exempt-exempt-tax model with a tax-exempt-exempt system.
He says in this new environment private and occupational pensions could be replaced by workplace Isas. However, he proposes the products should have a “lock up period” where investors cannot withdraw their savings, and be included in auto-enrolment legislation.
Johnson says workplace Isas could also incorporate “auto-protection”, a proposal to default savers into deferred annuities he unveiled in February this year.
He says: “The workplace Isa beckons and, for those without an employer sponsor, alternative (competing) providers should be available, including Nest. These Isas could incorporate a form of risk pooling in decumulation (i.e. auto-protection), to spread the post-retirement inflation, investment and longevity risks that few of us are equipped to manage by ourselves.
“Participation, however, should be optional, enabling savers to embrace the 2014 Budget’s post-retirement liberalisations (notably, to take cash from pension pots).”
Johnson says the Government should make a quick “Big Bang” transition to a new tax system to avoid the confusion experienced in Australia when it made a similar move.