DWP told to back ISAs due to inadequate auto-enrolment regime

Industry figures have stepped up calls for the government to go beyond the auto-enrolment of workers and ease ISA taxation laws to solve the nation’s savings shortfall.

Consultant Barnett Waddingham said the Department for Work and Pensions' "one-size-fits all" approach to retirement savings was badly targeted to help people save for retirement, and urged the government to back alternative savings products.

Partner Clive Grimley said the DWP's "silo" mentality on retirement saving was ill judged.

"They've got pensions in one silo, and ISAs in another silo and they need to think broader about this larger issue", he said.

"The big picture is this is not just about the savings gap for pensions. It's about the much larger savings gap, and to deal with that, one size does not fit all".

Benefits provider Creative Benefits said employers should be encouraged to offer corporate ISAs and formalised debt repayment vehicles as a better alternative to enrolment in a pension.

Development manager David Marlow said: "The government may narrow the retirement savings gap with auto-enrolment but will heighten financial planning problems for millions along the way.

"They are out-of-touch of the needs of many low earners who have rationally not taken up existing pensions on offer to them."

Automatic enrolment is due to come into force next year. The policy was originally put forward six years ago in Lord Turner's Pension Commission report.

"We've been saying for some time that you need to introduce the same tax and national insurance regime on corporate ISAs as you do on pensions. It'll never work if you get tax relief on pensions and not tax relief on corporate ISAs," Grimley added.