4th March 2016
The pensions minister has raised concern over chancellor George Osborne’s plan to replace pensions with pension-ISAs.
Ros Altmann (pictured) has backed the retention of the existing system, where contributions are exempt from tax, growth within the pensions is exempt and withdrawals are taxed at retirement – known as the exempt, exempt, taxed (EET) arrangement.
Osborne wants to move to a taxed, exempt, exempt (TEE) arrangement, which is how ISAs work. Contributions are paid out of taxed income and then suffer no more tax on growth or withdrawals.
The consultation on the change was launched in the last Budget and an announcement is expected on 16 March when Osborne delivers the 2016 Budget.
Altmann has voiced concerns about moving to a TEE system. Speaking to the Financial Times, she said by taxing withdrawals is a way to prevent people from spending their pension cash too quickly in retirement.
‘The freedom and choice reforms have put us in a place where people’s pensions can work well for them. However, tax is a natural brake on them spending their pension fund too soon.
‘It is clear that the system offers very good incentives for higher earners but it is also clear that those who are not higher earners may need some extra incentives,’ she said.
The paper added that the Office of Budget Responsibility was currently analysing the cost of brining in an ISA-style tax system for pensions or alternatively introducing a flat rate of tax relief at either 25% or 33%.
Altmann was reported in The Times last year as describing the plan for ISA-pensions as ‘dangerous’ and said they would remove the incentive to save money.