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Ros Altmann calls for Lifetime Isa to be scrapped

Ros Altmann

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 Funds can be withdrawn to a buy a first home worth up to £450,000, or can be retained until aged 60 when the pot can be withdrawn tax-free.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.

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Comments

There are 13 comments at the moment, we would love to hear your opinion too.

  1. Look who pipes up now after selling out the second she got into Government. She was found out as soon as she was in a position to actually do anything of value. Now she’s back to doing what she does best. Complaining and campaigning without the worry of having to actually do any of the hard work, think she prefers it this way.

  2. The lifetime ISA is an excellent idea. The way she talks about controlling people’s behaviour is a disgrace.

  3. John Shackleton 19th July 2016 at 9:37 am

    I think most will agree with this article. Certainly remove tapering – makes planning impossible. Control is and should be via the AA which should be comment for all.
    The big challenge however is how to address the issue of pension apartheid DB v DC and employer funding from a tax/ tax relief point of view.
    Solve those and then implementation of flat rate relief is possible.
    Perhaps start by limiting the accrual in DB to, say, £18,000 p/a pension (will cover the vast majority of lower/ average paid) and then overlay DC savings for all accrual post that maxima. That will take out a lot of the union’s arguments and at least start the ball rolling.

  4. I think that anyone who is, say, aged 41 or above, would be well-placed to cry ‘discrimination’ if this is introduced!

    If the product is to be subsidised by tax revenue, because let’s face it, that is what Government incentives/bonuses are comprised of, and the proceeds are to be tax-free upon receipt from age 60, then why should a 39 year-old receive such a benefit and a 41 year old not? Both will contribute towards the government incentive via personal taxation, so both should be entitled to the same rights of access to such a plan, age should not be a barrier, certainly not when people will be working into their 70’s anyway.

    • Andy Robertson-Fox 19th July 2016 at 11:20 am

      This, in a way, is the argument of the frozen pensioner. Why should someone who has contributed to the NI Scheme on the same terms as everyone else during their working life be denied the right to claim their pension on the same terms as everyone simply because they live, not in the UK or a “chosen” overseas country, but a so called frozen one? This discrıimination has been going on for over sixty years!

  5. She is on the right path.

    Having AA apply to DC and LTA to DB is sufficient. Add a few rules to stop people messing around, and it should be fine

  6. Geoffrey Hartnell 19th July 2016 at 11:53 am

    The calculation of annual allowance when taking in to account threshold income which may include bonus,dividends rental income etc has created a minefield,particularly if someone receives trust income over which they may have no control over timing nor quantum,or ad hoc bonuses or commissions.This can make our jobs nigh on impossible.

  7. This lady know’s that the number of people with personal pensions has halved in the last decade (pension policy inst); the average maturing PP, based on 420,000 maturing policies annually has a fund value of £25k (less than one years avg UK salary) and young people have high student and pay half their income in rent.

    As is said people will use the ISA for house purchase, and on current trends cant afford to save for retirement anyway.

  8. What she says is mostly correct, although the treasury is tasting the effect of plundering pensions by speaking to the average individuals greed. Pension funding has always been a discipline that some have found difficult to maintain. However pensions are there for when you NEED them, not for when you want them. You shouldn’t be able to access them just because the roof has blown off then hen house. The real problem has been in removing the enlightened self interest that certain bodies have with regard to pension funding.

  9. Making pensions SIMPLE… now where have we heard that before?

    I don’t think anyone should be penalised or discriminated against… the rules have still to be determined in respect of Lifetime ISA’s. The idea is good, but keep it simple… I know many individuals beyond age 40 who haven’t saved sufficiently for retirement, because they don’t trust pensions, so this acts as an alternative, or in addition to.

    In respect of house purchase, why not make it more flexible, so that parents can also save towards a deposit for their siblings… and if not used they can have it for their own retirement…

    The problem we have in this industry is we keep making matters more complicated than they need to be… if pensions, savings and products were less complicated and more accessible then we might actually educate the public to save more and reduce debt, that coincidently has spiralled beyond belief as the numbers of financial advisers has fallen dramatically over the same period!

  10. Sorry but I disagree and actually think even the wording should change- people should save for all eventualities and have the choice in how they use their savings- if for some that is just living on OAP that is their choice- there are plenty of tax incentives for people to save and plenty of non-retirement reasons for them to use savings when they want to. People living into their 100s need to get into their heads that they will need to work longer, save harder and be responsible for their own actions. So I am a fan of LISA as buying a house is just as important as retiring.

  11. […] She told Money Marketing: “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.” […]

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