ISAs should lead pension reform, Fidelity says Go compare with our comparison table

ISAs should lead pension reform, Fidelity says

03 March 2011 / by Paul Dicken

Fund manager Fidelity International is calling on the government to abandon its discussion on early access to pensions and concentrate on how ISAs can boost saving for retirement.

Fidelity says that making an explicit link between Individual Savings Accounts (ISAs) – a tax efficient way of saving – and retirement savings would achieve an increase in people saving for after they stop working.

In its response to the Treasury’s consultation on early access to pension funds the company says the annual £50,000 tax free pension limit should be linked to the overall annual ISA limit of £10,200 to create a single ‘£60,000 annual tax-advantaged savings limit’.

The Fidelity proposal is for up to £30,000 to be invested a year in the ISA part of savings, with up to the full £60,000 invested in the pension savings part, while any ISA savings accrued should be eligible for transfer into the pension savings when someone feels they no longer want access to the ISA savings.

UK managing director at Fidelity International, Gary Shaughnessy, said: “People are familiar with ISAs and understand their flexibility. The proposed system would make it clear that a considerable sum could be saved flexibly and people would have the choice of when to lock it into their retirement savings, and gain the benefit of an uplift through tax relief.”

The company also believes the interest in Workplace ISAs suggests a single place or wrapper for savings over the short to medium term, as well as retirement is something employers and staff would welcome.

Fidelity is critical of other measures to allow access to savings specifically accumulated for retirement. In the government consultation suggests possible models which include allowing a permanent withdrawal of some pension funds in times of hardship, the ability to borrow from pension funds or the option of earlier access to the 25 per cent lump sum people can take on retirement.

The other measure the government suggested was a ‘feeder-fund model’ – most similar to the Fidelity proposal – which would combine normal savings and pension savings in one savings vehicle.

Shaughnessy added: “Allowing early access to savings which are meant to be supporting an income in retirement adds substantially to the complexity of administration, all of which is ultimately borne by the saver.

“ISAs are extremely popular and we believe that we should create a simpler savings and retirement regime which builds on this success in order to help people to achieve the level of retirement provision they will need to fund their retirement.”

© Fair Investment Company Ltd

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