Royal London director of policy Steve Webb is to warn of the dangers of implementing a pensions ISA, describing it as George Osborne's "Gordon Brown moment."
Speaking at the Association of Consulting Actuaries annual conference today, Webb (pictured) will say that a pensions ISA would be a convenient way for the Chancellor to raise money, but will be detrimental for savers. He likens it to Gordon Brown's notorious tax raid on occupational pension schemes.
A pensions ISA, or a TEE - tax, exempt, exempt model - has received widespread criticism from the industry. In October, the National Institute of Economic and Social Research published an analysis on the future implications of TEE, concluding that it was unsustainable.
Webb is expected to say that abolishing tax relief on pension contributions would damage pension saving incalculably. He will highlight the problems associated with pensions ISAs, such as administration issues.
At the conference, Webb will say that the ‘Lamborghini risk' will be exacerbated, as the possibility of a tax-free lump sum may encourage people to take the money in one go rather than spread withdrawals over a number of years.
According to Webb, schemes and providers would have to run parallel pension accounts for each individual for decades to come - one with tax already taken out and one yet to be taxed.
Webb warns that taxing pensions up-front will effectively bring forward tax revenues from future generations, yet future generations will be the ones that need a broader tax base as they face the biggest bills for pensions, health care and social care.
ABI director for long term savings Yvonne Braun agrees that a pensions ISA could put people off saving.
She commented: "A promise of ‘no tax in retirement' is a promise the current Government is unable to make, because no future Government will be bound by it. While an ISA approach may be superficially attractive to some, it would damage the economy by shifting the entire tax burden onto the working age population, and put employer contributions and the progress of automatic enrolment at risk."
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