In Royal London's business results, Loney said that the public could not trust future governments to honour any promise of a tax free ISA style income, and that ISA-style pensions would undermine public confidence.
Loney said:
"Creating a healthy savings habit amongst the UK public must be the ultimate goal of all who really care about preserving decent living standards in later life. This is the rationale for Royal London’s strong opposition to the proposal that income saved into pensions should be taxed like an ISA. Nobody should be asked to save for 30+ years without absolute certainty that savings made from their income will not be taxed twice. The public will not trust future cash strapped governments to honour any current promise of a tax free ISA style income in retirement. We urge the Treasury to focus its review of Pension Tax Incentives on reforming the current “up front” tax relief system to make it simpler to understand and fairer for all, considering proposals such as a single rate of tax relief on a "2 for 1" basis.
"Although automatic enrolment has been running for 3 years the process is far from complete as the majority of smaller firms have yet to establish a workplace pension. Treating pensions like an ISA risks undermining public confidence in long term savings and derailing all of the achievements to date."
Last week, George Osborne confirmed that the Treasury will produce the government's final response to its pension tax consultation in next year's budget, and not in the Autumn Statement as had been predicted.
Industry experts have been sceptial of the proposed changes. Stephen Green, senior consultant at Towers Watson, said that the policy will make it "much harder for high earners to plan their pension saving".
He added:
"First, they won’t know their income until the end of the year, so won’t know how much they can save without incurring tax penalties. Second, cutting back on pension contributions to avoid penal rates of tax may not always be the right thing to do: it can mean losing matching contributions from the employer – though we expect that many employers will respond to this change by offering cash alternatives to affected staff."
TISA, the financial services membership association, also warned that moves towards a pension ISA would be counter-productive as it would destabilise workplace pension saving without offering a superior outcome for savers and would also result in limited future tax revenues.
