If someone does care to look at the numbers, it seems almost universally true that the workplace pension is better for people – if they are saving for retirement – than the Lisa. The latter, of course, is favourable for those people who simply want to buy their first house and need to muster up a deposit.
AE would be fundamentally undermined if the Lifetime Isa was deemed to be favourable for retirement saving, rendering the principle that you can put almost any employee into a workplace pension flawed.
But the Lifetime Isa does not try to outdo pensions for retirement purposes, nor has it been placed within the AE framework.
So what next for tax relief?
The debate will undoubtedly resurface, but, just as the reasons for having it in the first place have remained, so have the problems with making a major change.
The arguments in the short term centred on the relative merits of applying different models as to how they will play out for people in different tax positions. Lots of work was done to look at people whose tax status (basic, higher or additional ratepayers) changed throughout their lives. There were many attempts to ensure there were no cohorts who would be worse off under different scenarios. However, it was never a condition that no one would be worse off, and if you assume it is not a zero-sum game, then someone must bear the cost of reducing government incentives. Probably those with the ‘broadest shoulders’.
The longer-term considerations are perhaps a little more interesting, and beg a more philosophical – even moral – discussion. Breaking the link between tax relief and income tax changes the deal; pensions could no longer be described on the basis of ‘deferred income’. And removing taxation in retirement removes one of the key reasons people do not fully encash larger pension pots. Should tax serve as a natural break on activity that could be harmful to those making decisions about their money?
Also in that mix is the question of how society is structured to pay for its collective welfare. If we increased taxation on people during their working lives in favour of removing it for those who are taking their pension, would we simply end up with an increasingly large population of people in retirement who neither contribute through work or taxation? Some say that would be a fairer system. But we would never have any guarantee that a future government saw it that way.
