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 pension tax regime has experienced a number of changes. The OBR paper examined these changes to taxation for private pensions and savings, which include lowering the amount workers can put into a pension each year without incurring tax to £40,000, with a £1m lifetime cap and the pension freedoms introduced by former Chancellor George Osborne that allow workers to access their retirement savings from the age of 55. They concluded 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) is due to increase significantly to £20,000 a year from 6 April 2017 and additional ISA packages, which offer significant benefits, are also due to be introduced – in particular the Lifetime ISA which is due to be Launched in April 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.”