The Government began examining possible reforms to the taxation of pensions last summer as the Treasury launched a consultation. A report and policy reform proposals arising from this are expected to be made at next month’s Budget.
Phil Loney, chief executive at Royal London, this morning urged the Chancellor to abandon any plans for a Pension ISA.
He said: "There remains a considerable risk that ISA style pensions, even with an incentive thrown in, will simply turn people away from long term saving.
“Savers will lose the certainty of a tax relief system which ensures their saved income is not taxed twice, and be thrown into an ISA-style system where they need to believe that future generations of politicians will not renege on the deal and tax their savings when they come to withdraw. Hands up anyone who really believes that?
"I strongly urge the Chancellor to build on his excellent record of introducing the pension freedoms by reforming the current tax relief system and not abandoning it.
“He should not take the huge gamble of introducing ISA style pensions, which would be reckless at a time when the numbers saving into a workplace pension are finally growing, following the successful introduction of automatic enrolment. This is not the time to turn the system upside down."
Mr Loney said critics of the perceived unfairness of the current system, where 75% of tax relief goes to high and additional rate taxpayers, have won the intellectual argument.
He said while Royal London has been a leader in calling for change, “ it has never been true that all of the reform options are better than the status quo”.
He said: “It is my belief that proponents of the ISA-style pension taxation are clearly thinking too short term.”
Meanwhile, his company reported its results for the 12 months to the end of December.
New life and pensions business on a PVNBP basis of £6,774 million represented a 40% increase.
This included:
o Group Pensions £2,798m (+27%)
o Individual Pensions £1,926m (+39%)
o Drawdown £1,301m (+67%)
o Protection Intermediary £502m (+49%)
o Consumer £165m (+385%)