A new report from the Office for Budget Responsibility (OBR) has found that changes to the tax regime may make pensions less attractive than ISAs to many wealthy workers.
Since 2010 the UK pensions have experienced a number of changes which the Office for Budget Responsibility (OBR) found made private pensions less attractive than other forms of savings to many workers.
The OBR paper examined a series of changes to taxation for private pensions and savings, including lowering the amount workers can put into a pension each year without incurring tax to £40,000, with a £1m lifetime cap, along with the freedoms introduced by former chancellor George Osborne which allow workers to access their retirement savings from the age of 55 and found that many savers may be better off saving outside of a traditional pension scheme.
At the same time, the maximum amount that can be put into a tax-free individual savings account (Isa) has been raised significantly to £20,000 a year and additional ISA packages, which offer significant benefits have been introduced – in particular the Lifetime ISA which is due to be introduced in 2017.
The OBR said the government “has generally shifted incentives in a way that makes pensions saving less attractive – particularly for higher earners – and non-pension savings more attractive, often in ways that can most readily be taken up by the same higher earners.”
A Treasury spokeswoman said: “The government wants to ensure people can save in a way that works for them, for both the short and the long term. That’s why we continue to support pension saving and savers through new initiatives such as the personal savings allowance, the lifetime Isa and Help to Save.”