Plans for another new ISA unveiled
Plans have been unveiled for another new type of ISA.
Michael Johnson, research fellow at the Centre for Policy Studies, has outlined his ideas for a Workplace ISA.
He wrote a paper about creating a Lifetime ISA two years before the Chancellor announced the policy at last month’s Budget.
Mr Johnson said the Workplace ISA would complement the Lifetime ISA.
The Centre for Policy Studies published a report today, in which it said auto-enrolment’s reach should be expanded, and both the Lifetime and Workplace ISAs “included within its legislative embrace”.
The Workplace ISA would be a “powerful tool to discourage opt-outs, thereby enhancing employee engagement with saving”, the think tank believes.
Mr Johnson said: “The Lifetime and Workplace ISAs, operating together within the auto-enrolment framework, would help many people of modest means achieve a goal that was originally proposed in a 2012 paper aimed at catalysing the broad-based savings culture that the UK so desperately needs.
“The majority of the population should be encouraged to set themselves one simple goal at the point of retirement: to be a debt-free home owner (including no consumer debt). Thereafter, they could perhaps downsize to top-up their retirement income, and perhaps finance long-term care.
“Ideally, the Workplace ISA will be announced in the 2016 Autumn Statement, after a summer spent assessing the public’s response to the Lifetime ISA, perhaps for 2018 implementation. It would, of course, compete with today’s occupational pensions savings schemes.”
The CPS outlined the key features of the Workplace ISA as the following:
• The Workplace ISA should be included in the auto-enrolment (AE) legislation. This is fundamental: employers are integral to auto-enrolment’s success. It should be open to all auto-enrolled employees under the age of 40.
• Employer contributions, taxed at the employee’s marginal rate, may be paid into a Workplace ISA until the age of 50 (as per the Lifetime ISA). They should be accompanied by the same 25% Treasury bonus as that intended for the Lifetime ISA.
• Withdrawals from the Workplace ISA should not be permitted until the age of 60; thereafter, they would be tax-free.
• Auto-enrolled employee contributions, made with post-tax income, may be paid directly into the employee’s Lifetime ISA. They would be subject to the same tax, withdrawal and penalty rules as other Lifetime ISA savings. They should also be eligible for the Treasury’s 25% bonus.
• Employer and employee contributions should share an annual contributions cap of £10,000, subject to Treasury cost modelling.
• The Workplace ISA could be housed within the Lifetime ISA, leaving the individual with a single retirement savings vehicle.
• Workplace ISA assets should enjoy the same Inheritance Tax treatment as today’s pension pots and should be excluded for means testing purposes, as per today’s pension assets.