Thinktank calls for savings overhaul
By myfinances.co.uk staff
Tax-incentivised savings products like ISAs should more closely linked with pension funds to encourage people to put money aside for their long-term future, a new report has argued.
In a paper for thinktank the Centre for Policy Studies, pension policy analyst Michael Johnson said the annual contribution limit for ISAs and similar vehicles should be raised to £45,000.
Furthermore, there should be a cap of £35,000 a year on pension savings, he added.
To improve "fluidity" between pension funds and ISAs, the government should introduce pre-retirement access to former and retrospective tax relief on assets from the latter that are re-nominated as pension savings once a person has finished working.
Mr Johnson also called for the extension of auto-enrolment, which is due to come in for retirement saving in 2012, to the ISA market and for income tax exemptions on annuities bought using funds built up in the accounts.
Tim Vine-Lott, director-general of the Tax Incentivised Savings Association, welcomed the plan, adding that many people prefer the "simplicity" of using ISAs compared to a workplace pension scheme.
"A staggering £35.7 billion of new saving went into ISAs in 2007-08, compared with employee pension contributions of £27.9 billion for the same period," he noted.
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