Former pensions minister Ros Altmann says she wants to see the Lifetime Isa scrapped as it will drive the wrong behaviour when it comes to pension saving.
From next April, any saver under 40 years old will be able to save to £4,000 a year into a Lifetime Isa and will receive a 25 per cent Government bonus. Funds can be withdrawn to a buy a first home worth up to £450,000, or can be retained until aged 60 when the pot can be withdrawn tax-free.
George Osborne set out the plans for the Lifetime Isa in his Budget speech in March.
Altmann, who left the Government last week, says it is dangerous to treat pensions as anything other than pensions.
Speaking to Money Marketing, she says: “I would love to see the Lifetime Isa scrapped. The Lifetime Isa is by definition not going to last a lifetime because it’s an Isa, and because you can get the tax-free money too soon.
“A pension is meant to provide money lasting into your eighties. Instead of using it as a proxy pension for very well-off people, who perhaps have already filled their pension allowance, why don’t we just use it for house purchase if that is what is required and for helping people onto the housing ladder, and keep pensions as pensions. They’re not Isas, and they shouldn’t be Isas.”
Despite her concerns, Altmann does not believe the Government will ultimately shelve the Lifetime Isa idea. But she says she would much rather see a “Lifetime pension.”
She says: “That means you’ve got the behavioural nudges in the right place. If by taking money too soon you would be taxed on it, then there is more reason not to spend it. That’s the behavioural push we need, and that’s what pensions give you.”
Altmann also wants to have a “one nation pension”, that is, a move to a flat rate of pension tax relief which would be described to consumers as for every £3 you pay in, the Government will pay £1.
She is also critical of the tapered annual allowance for higher earners, where those with adjusted income over £150,000 see their annual allowance reduced from £40,000 down to £10,000 for those earning over £210,000.
Altmann believes this too needs to be scrapped, saying it is too complicated. She adds the best thing to do would be to “try and simplify the system” for pension taxation.