Pensions minister Baroness Ros Altmann has slammed the Treasury’s shelved proposals to tax pension contributions in line with current rules on Isas.
Altmann has long been a vocal opponent of the plans, telling Money Marketing in July last year that such a move would be “a big mistake”.
Speaking yesterday at an Association of British Insurers conference in London, Altmann said she was relieved Chancellor George Osborne had opted instead to introduce a new, optional Lifetime Isa, rather than redraft pensions tax relief in its entirety.
She said: “Turning pensions into Isas would be a disaster. It would destroy pensions as we know them.
“Pensions have the right behavioural nudges for people. You get an incentive on the way in, you get employer contributions, and then when you come to the point later on, you have a built-in brake on spending your money too quickly.”
Altmann demurred on whether she had managed to convinced Osborne of her arguments, but added the Lifetime Isa would have benefits for self-employed people in particular.
She said: “If you are an employee, and you have an employer, the best thing you can do is have your money in a workplace pension.”
Fernquest Financial Planning IFA Luke Fernquest says: “I don’t think anybody wants the current regime to end, so it’s good to see Ros has come out like this.
“But what our clients really want is a sense of long-term commitment to a simple system, so we will have to wait and see if she can convince the Chancellor.”
AJ Bell head of technical resources Gareth James says: “In scrapping plans to announce the pensions Isa in the Budget, the Government acknowledged flipping the tax relief system on its head is not a silver bullet solution.
“However, the fact radical reform hasn’t been ruled out breeds uncertainty, so the Treasury now needs to be straight with the public about how it plans to proceed.
“I’m unconvinced a pensions Isa would destroy pensions as people will always need to save, but the case for change needs to be sound. The last thing we need is change for change’s sake.”
Altmann also called on providers to play a greater role in publicising the attractive traits of pensions more generally.
She said: “Pension providers could get together to fund a publicity campaign for pensions generically,” suggesting that such a campaign coupld explain the merits of pensions, as opposed to other methods of savings.
“[Through auto-enrolment] the Government is handing the industry millions more customers on a plate. This is a tremendous opportunity for the industry to engage with those people in ways you never have before and help them understand why pensions are so precious.”