The Government should allow employees to be auto-enrolled into both pensions and Isas as part of a radical shake-up of the savings regime, according to Standard Life.
In its response to the Treasury’s call for evidence on early access to pensions, Standard says employees should be able to pay 4 per cent of salary into an Isa, with the employer putting 3 per cent into a pension.
Head of pensions policy John Lawson says allowing people to auto-enrol into an Isa would reduce opt-out rates, which Standard estimates will be at least 30 per cent under the current plans.
He says: “With this sort of option, where you can get your money back out through an Isa and still benefit from your employer’s pension contribution, we will get a much higher take-up rate and sooner or later, some of the money that is going into Isas will stick and people will get into the savings habit.”
Towers of Taunton director Robin Keyte says: “This could boost savings but the problem is whether the employee has the financial capability to make a well-thought-out decision that works for them. But it would be a step forward and you would suddenly see traditional pension providers offering Isas along- side pensions.”
Standard is also proposing increasing the flexibility of rules governing pension income to help fund long-term care.
It says a tax credit of 20 per cent should apply to any pension income used to fund long-term care costs.
Standard says someone who goes into long-term care should be able to draw down their entire fund over three to four years to pay for care fees, without having to meet the minimum income requirement of £20,000.
It is urging policymakers to encourage intergenerational transfer of pension funds by taxing such transfers at 25 per cent rather than 55 per cent when it goes to the estate.