The Centre for Policy Studies has called for radical simplification of the savings framework to bring Isas and pensions closer together.
In a new report, published last week, the thinktank makes extensive recommendations to simplify the pensions and savings regime and encourage the growth of a savings culture.
The proposals include setting an annual contribution limit of £45,000 for all tax-incentivised savings – with a maximum of £35,000 for pensions – and providing tax relief at the saver’s marginal tax rate, even if that is 50 per cent.
The CPS proposes introducing fluidity between Isas and pensions through early access to pension savings and retrospective tax relief on Isa assets at retirement.
It proposes that partners should be allowed to fund each other’s pension pots and receive tax relief irrespective of their own earnings and says savers should be permitted to bequeath unused pension savings to third-party pensions, free of inheritance tax.
Other recommendations include extending auto-enrolment to include Isas and exempting annuities purchased with Isa-derived funds from income tax.
It says the proposals are intended to meet demand for more savings flexibility, restore some intergenerational fairness and start to address gender inequality.
The paper describes four alternative tax relief structures which could save the Treasury up to £8.5bn a year without risking a sharp reduction in long-term saving.
It describes steps towards scrapping the two-track pension/Isa tax relief regime and replacing it with a single, unified tax framework that is easy to understand and attractive to long-term savers.
The CPS says that a radical simplification is a prerequisite to encouraging more people to save more and would enable the industry to offer a simple savings continuum, perhaps under a lifetime savings banner.
The report has won cross-party and sector support. Conservative peer Lord Blackwell says: “This paper should be welcomed by everyone interested in the future of savings and pensions in the UK for the clarity of its analysis and practical solutions for encouraging a stronger savings culture.”
Labour peer Baroness Hollis says: “This is the best exposition of the financial strictures and structures of retirement savings I know.”
Hargreaves Lansdown pensions analyst Laith Khalaf says: “This paper contains some interesting and radical ideas for encouraging long-term saving and is just the kind of thing our new Government will be looking for.”