LISA – back door to pension reform?

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The announcement of the Lifetime ISA suggests that the Chancellor has not given up on his ideas for reforming the taxation of pensions.

Shortly before the Budget there was an unofficial announcement that the much leaked plans for pension tax reform would not happen. Most commentators think the Chancellor has not abandoned his plans, but merely put them on hold to avoid antagonising anyone ahead of June’s European referendum. The response to the original consultation on pension tax reform, published on Budget Day, was notable for including no comment on next steps.

Budget Day also saw the surprise announcement of a new ISA variant, the Lifetime ISA (destined to be LISA). Available from April 2017 to those aged under 40, the LISA will:

The LISA looks remarkably like an idea floated in the summer consultation paper on pension tax reform, the Pension ISA. Even the age of 60 fits quite neatly: anyone born in 1978 or later is probably looking at a State Pension Age of 68 or more, meaning access to private pension provision will not be available until age 58 at the earliest.

The arrival of the LISA will coincide with a significant increase in the overall ISA contribution limit to £20,000, welcome news for those who don’t qualify for a LISA. In the meantime, making pension contributions continues to look like an attractive retirement planning option – while it remains available.

The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice. The value of your investment can go down as well as up and you may not get back the full amount you invested.

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