Government plans to merge ISAs and pensions would harm retirement saving and mean more retirees run out of money, Axa Wealth head of retirement planning Andy Zanelli has warned.
The government proposed to simplify pension taxation in a consultation following this year's Summer Budget and pension freedom reforms, in order to get people to save more.
In particular, it raise the idea of removing upfront tax relief, changing the system to that applied to ISAs.
Currently pension savings benefit from tax relief upfront and collect taxes at the point of withdrawal, ('exempt, exempt, taxed') whereas ISAs do it the other way around ('taxed, exempt, exempt').
The government said it wanted to create a simpler and more transparent way of taxing pensions to "incentivise more people to take responsibility for their pension saving so that they are able to meet their aspirations in retirement".
But Zanelli (pictured) warned the proposed changes would have the opposite effect and lead to more people taking out accessible savings products and drawing their cash before retirement.
The Centre for Policy Studies research fellow Michael Johnson called for a full unification of pensions and ISA regimes in April and the introduction of a workplace ISA to replace traditional retirement savings vehicles.
But Zanelli said: "If you are trying to address the savings issue by allowing them to put money into something accessible it won't work. It's counterproductive.
"If ISAs and pensions do the same thing people might promote the ISA in place of the pension. People would be tempted to draw money in times of a ‘crisis' and everybody defines ‘crisis' differently.
"If there is one allowance for both products nobody would go for the pension."
Simplification, not unification
Zanelli agreed pension taxation needed to be simplified such as by getting rid of the life-time allowance and introducing a flat rate pension relief of around 30%, as previously mooted by the Pensions Policy Institute.
But he said ISA and pension saving regimes should be kept separate and the current way of taxing pensions kept in place.
"The pension tax rate needs to be reviewed. It needs to incentivise people who need to save and those who are higher rate tax payers.
"But [the government] should not change it to taxed exempt exempt, it does have an effect on savings."
Rival Old Mutual has also warned of the pitfalls of ISA-style pensions. Chief executive Phil Loney suggested savers would not trust they will still receive tax relief by the time they retire.
But Zanelli said he thought it unlikely the government would change the point at which pensions are taxed despite consulting on it in a way others have described as a "foregone conclusion".
"They send stuff out because they think they know what they are going to do but that doesn't reflect what they are going to do in practice. Lots of ideas are so very good but when different parties respond the view [changes]."
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