The UK Treasury is looking for new ways to encourage people to save for their retirement. They are opening up discussions with the pensions industry to explore new products and publicity ideas.
One idea which has been suggested is to allow ISAs to be incorporated into a pension fund and help boost their overall pension. This suggestion has been welcomed by the pensions industry as it would allow them access to the successful ISA market in Britain. Furthermore, this would also be of benefit to savers, providing further options for tax relief on their savings and a larger pension income.
Another idea which has been suggested would be to encourage ISAs to become a part of company wide savings schemes. Tax incentives would be given to companies who paid money into an employers ISA as well as a pension.
The Treasury has confirmed that there are no plans to completely merge ISAs and pensions into one savings system.
The Tax Incentivised Savings Association (TISA) is calling on the government to provide a new way of encouraging savings by taking the best parts of ISA saving and combining it with the best parts of pension funds, which would allow people to save for their future as well as provide access in case of an emergency.
Tony Vine-Lott, the director general of TISA, is encouraged by the willingness of the Treasury to consider new and innovative ideas to open up the retirement savings options that will move away from the dominance of pension schemes. He added: “There has been this strange belief in government that pensioners only need a replacement income in retirement and don’t need savings, but how do they pay for a holiday or a wheelchair? What if they get ill or the car breaks down?”
Many people are questioning whether there is a need for another change to the pensions system, considering that three other changes are already being planned. A number of financial experts have expressed concerns over these plans. They have suggested that the Government may consider cutting back on the tax relief which is applicable to pension schemes as a result of this new proposal. The current system of pension tax relief has gradually become more restricted for people with higher earnings over the last few years, although it is still substantial.
Mike Morrison of AXA Wealth has welcomed the government discussions, but is wanting government assurances that any link between ISAs and pensions would not impact on the tax reliefs already in place. If so, he believes that there may be a future in the proposals.
At present, the main attraction of a pensions savings scheme is the tax relief on any contributions that are paid into it. If any savings in an ISA could be attached to a pension fund, with the associated tax relief, this could be an attractive prospect for any worker who is coming closer to their retirement.