The Centre for Policy Studies is calling for pensions tax relief to be scrapped and replaced with a Government contribution of 50p for every pound saved into a simplified, single purpose ‘Lifetime Isa’.
In March’s Budget, Chancellor George Osborne announced the Isa annual allowance would rise from £11,250 to £15,000 from 1 July, with cash and stocks and share wrappers merged under the one allowance. The Junior Isa limit was also increased from £3,720 to £4,000.
In a paper to be published tomorrow, the CPS will call on Government to create a new single savings vehicle with an annual limit of £30,000, set up automatically when a baby’s name is registered.
To encourage saving, the CPS says tax relief as it stands should no longer be paid on pensions contributions but the state should instead contribute 50p for every £1 put into a Lifetime Isa or a pension, up to an annual allowance of £8,000 split between the two.
The Treasury’s contribution would be paid regardless of a saver’s tax status.
The Lifetime Isa would be able to hold cash and investments as well as incorporating features that rely on passive acceptance, including a passively managed default fund. Underlying fund costs would be capped at 0.35 per cent per year and all income automatically reinvested.
The Lifetime Isa would “provide a degree of ready access to savings”, though withdrawals made before the saver hits 60 will only be allowed if Treasury contributions are repaid first. Even then early access would be limited to original contributions, with no access to any capital gains and accumulated income.