Webb, Royal London's Director of Policy, has compared the move to Gordon Brown’s "notorious tax raid" on occupational pension schemes.
Speaking at the annual conference of the Association of Consulting Actuaries today, Webb will say:
“Replacing tax relief with a Pensions ISA could be George Osborne’s ‘Gordon Brown’ moment. The former Chancellor probably thought that raising billions of pounds from pensions through abolishing dividend tax credits was a complex change which few would understand but which would quietly raise billions from pension savers. But the legacy of that damaging change is still being felt today, and the former Chancellor’s name is forever associated with that measure.
"There is a real danger that with the “Pensions ISA” history could repeat itself. Abolishing tax relief on pension contributions would certainly raise large sums for the Chancellor, even if some of the proceeds were given back as a government top-up into pension pots. But the damage done to pension saving would be incalculable, as pensions are once again seen as a convenient pot for cash-strapped Chancellors. Just at the point that millions more people are starting to save through automatic enrolment, upheaval in the tax treatment of pensions is the last thing we need.”
Discussing the problems associated with Pensions ISAs, Webb highlighted the need for pension schemes and providers to run parallel pension accounts for each individual for decades to come, one with tax already taken out and one yet to be taxed.
He also believes that if pension withdrawals were tax free, the ‘Lamborghini risk’ would be exacerbated, as there would be much less incentive to spread withdrawals over a number of years.
Webb added that taxing pensions up-front "effectively brings forward tax revenues from future generations", despite future generations facing the biggest bills for pensions, health care and social care and needing "as broad a tax base as possible".
He concluded that confidence in pension saving among employees and employers would be further damaged, stating that if the Government contribution to pensions was simply a top-up to taxed contributions "this would simply be another element of the system which Chancellors could tinker with from year to year, creating yet more uncertainty".
Commenting on Webb's speech, ABI Director for Long Term Savings, Yvonne Braun, said:
“We agree that a Pensions ISA would be a big mistake which risks putting people off saving. A promise of ‘no tax in retirement’ is a promise the current Government is unable to make, because no future Government will be bound by it. While an ISA approach may be superficially attractive to some, it would damage the economy by shifting the entire tax burden onto the working age population, and put employer contributions and the progress of automatic enrolment at risk.”
