After weeks of frenzied rumours of further major changes to the UK’s pension system, the Chancellor decided to leave well alone in the Budget. But the retirement industry fears the surprise new lifetime Isa signals the death knell for pensions.
George Osborne’s only reference to the leaking of potential pensions’ policy to the press to gauge reaction – the majority of which was negative – was to say in his speech: “We’ve consulted widely on compulsory changes to the pension tax system. But it was clear there is no consensus.”
But while there will be no “compulsory” changes, retirement experts warn of change by “stealth”. Many insiders say it has been clear for a number of years that the Government was laying the ground for an effective abolition of pension plans in their current form, with Isas to be the replacement.
“The new lifetime Isa looks like a backdoor policy designed to attract younger people towards Isas over pensions,” said Rebecca O’Keeffe, head of investment at Interactive Investor.
Lynda Whitney, partner at Aon Hewitt, added: “The Chancellor’s announcements on pension issues look like unfinished business. The new lifetime Isa could well be the Trojan horse that kills off pensions at a later stage.”
Michelle McGrade, chief investment officer at TD Direct Investing, said: “Mr Osborne has today had a first stab at pension simplification. Rather than tinkering with the old regime, he is dreaming up a new one.”
Part of the problem is because “pensions remain a tainted brand, shrouded in complexity and mistrust”, according to Holly Mackay, managing director of website Boring Money. She predicted that: “UK pensions companies will be huddled in the boardroom today, feeling beaten up and digesting what this means for the future of the pension.”
But it’s been clear for a number of years that the Government was laying the ground for an effective abolition of pension plans in their current form, with Isas to be the replacement, said Brian Dennehy of FundExpert.
“Over-40 pension savers should not expect the current tax attractions of pension plans to persist for more than another year, perhaps two,” he warned.