Mike Morrison, Head of Pensions, AXA Wealth, writes in response to a report that The Treasury is looking at opening discussions with the industry on the practicalities of linking ISAs and pensions.
One of the ideas that AXA Wealth has been considering is the link between ISAs and Pensions, particularly in light of the advancements in the platform space and, in particular, our own success with Elevate. Indeed in the recent consultation on early access to pensions better linking of more liquid investments like ISAs with pensions was the option that seemed to be most attractive. And although this was not taken forward specifically there was the inference that this could be one idea for the future.
But neither we, nor the Treasury, are alone, with amongst others Michael Johnson and the Centre for Policy Studies in his report "Simplification is the Key".
AXA Wealth has suggested that there might be a future in this sort of idea however a number of policy considerations will need to be shown
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That this would encourage and increase long term savings
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That early access to savings will not produce poor outcomes for retirees when the overall trends of longevity and later working are putting the emphasis on long term savings
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That such a link is not seen as just a way of further decreasing tax relief but is practically a way of incentivisation
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Cost
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Is there a need to rationalise the tax treatment - (currently pensions are EET and ISAs are TEE) at least to facilitate collection.
The current separate regimes of pensions and ISAs do not work efficiently - the figures seem to suggest that people do like ISAs - in particular cash ISAs, with access to the money being a real advantage, at the same time, pensions are often seen as inflexible with no access to the money until at least age 55.
However, consider a long term savings product - it would have commenced with the child trust fund, now the junior ISA and then rolls onto a full savings plan with payment made into a plan with the ability to buy either ISA units or pension units - savers could choose their allocation split with, say, younger savers choosing more into ISA units and older savers buying more pension units - overriding this (and using the ‘nudge' concept of soft persuasion) there could be a default lifestyling mechanism that diverts more into pension units as a saver gets older so that by a certain age all money is buying pensions.
Other features could be:
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The opportunity to build in some form of "loyalty " bonus if ISA units are converted into pension units at certain points
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The facility for employer contributions either on the same basis or perhaps all into pensions with "access" points at various lifestyle events.
Whilst it is accepted that the two regimes currently exist and the above is possible on a bespoke basis the idea of packaging the concept would give access to a wider audience and would sit comfortably on a platform or corporate wrap.
At the point of retirement say age 55 when the question of access is no longer relevant there could be the ability to move ISA units into pension to maximise the retirement options - be that annuity purchase or even some form of drawdown.
I welcome the proposed discussion. It has been a long time overdue
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