'Workplace' Isa vs Pensions: how best to encourage saving?
New pensions minister seems to have supported merging of Isas and pensions before taking government job
Could the two principal savings schemes in the UK, the Isa and pensions, soon be merged?
The idea sounds far-fetched, but an article written by new pensions minister Baroness Ros Altmann suggests that combining the two could soon be supported by the government. In a piece for the trade magazine Employee Benefits, written before her appointment, Baroness Altmann stated that savers should be offered "other forms of saving alongside pensions" in order to encourage people to put more money aside.
It's an idea that has long been championed by Michael Johnson, a fellow at the Centre for Policy Studies think tank. The Financial Times says a new paper today echoes a call in several others published over the past three years to merge the Isa and pension regimes and radically simplify tax reliefs available.
Johnson argues the change would attract younger people used to saving into their tax-incentivised savings accounts and remove the confusion over tax reliefs on pensions, which some suggest may have pushed middle and higher earners away from contributing.
Ahead of a likely fresh clampdown on relief for higher earners in next week's budget, the think tank has previously called for a simplified tax relief – for instance 30p in the pound – for all savers irrespective of earnings, which it claims would be easier to understand and fairer. It has been estimated that higher earners currently command about three quarters of pension relief despite only making about half of all pension contributions.
The key problem for a merged regime would be how to prevent people taking money out of their pot early and thus not providing for retirement. Advocates say higher overall saving rates would counter this, while the Daily Telegraph suggests offering a top-up on any savings held until, say, 60.
Of course, there is already a Workplace Isa, which the Money Advice Service says started out as an easy way to contribute to a stocks and shares account directly from your salary, but which has since been extended.
It highlights a number of benefits for people seeking to contribute to an investment Isa from their salaries, including reduced set-up, admin and switching fees due to bulk discounts offered to employers. There are, however, fewer options for changing your mind as you can't just up sticks to a new provider.