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A recent investor note[1] from Morgan Stanley looks at the Chancellor’s options following his announcement to consult on the future of pensions tax relief.[2] Subtitled UK – Leaning towards a PISA, it describes four scenarios following the consultation, and quantifies their impact on the Treasury’s finances.
The base case scenario envisages a “PISA Revolution”, on the grounds that it best meets the government's criteria of
- incentivising pension saving;
- simplicity and transparency;
- allowing individuals to take personal responsibility; and,
- improving fiscal outcomes.
This scenario is close to that proposed by Michael Johnson in his Centre for Policy Studies papers Introducing the Lifetime ISA (August 2014), following publication of the sister paper Retirement saving incentives (April 2014).
Morgan Stanley’s work concludes that we should expect radical reform for fiscal, economic and political reasons. Interestingly, Morgan Stanley reports broad support for change among experts and the industry.
The CPS will be publishing another Johnson paper within the next few week; Beyond pensions: an ISA-centric world. This will detail a Workplace ISA to replace occupational pensions. It would be subsumed within the Lifetime ISA to leave everyone with a single savings product to serve from cradle to grave.
Tim Knox, Director of the Centre for Policy Studies comments:
“That Michael Johnson’s work on pension reform has received such high level support is most welcome. His work for the CPS continues to demonstrate that imaginative proposals, founded on deep research, can change both informed wisdom and practical policy.”
[1] Europe Insight; Diversified Financials, Insurance, Economics & Strategy; Morgan Stanley Research, September 10, 2015.
[2] Strengthening the incentive to save: a consultation on pensions tax relief; HM Treasury. Closes 30 September 2015.
