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Think-tank: Scrap pensions tax relief and create single ‘Lifetime Isa’

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.


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There are 3 comments at the moment, we would love to hear your opinion too.

  1. Another stupid idea that’ll never fly. What’s the difference between tax relief at 20 or 40% and a 50p in the pound contribution from the central exchequer, except that the latter will cost a whole lot more and thus won’t get off the ground?

    Fidelity had the right idea with its Pension ISA. Cost neutral for the government, with the trade off between tax relief and deferred access being the 25% tax free cash facility after age 55 (or, as it may soon become, 57).

    It’s hard not to view most of these think tanks as just a waste of public money.

  2. With an £8000 annual allowance I think they will have to exclude civil servants/local government final salary pensions from that then unless they propose a big cut? Assuming the left leaning CPS doesn’t then it’s even less equitable divide that government pensions would be on a much higher limit then the private sector.

  3. Leader; ‘Scrap pension tax relief’

    Article; ‘restrict pension tax relief, restrict access to ISA to make them look/feel like a pension’

    Consequence; Early retirement becomes 60, not 55 (or 57 as noted above).

    2nd consequence; increase lifetime dependence upon the state by hammering short term savings incentives

    Challenge; find an organisation with the initials CPS which doesn’t make b***dy silly prognostications.

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