Taxation – ISAs belong with pensions

Professional bodies have warned the government that individual savings accounts (ISAs) and stakeholder pensions must be developed together.

Final details of the schemes, both aimed at encouraging people to save for old age, will be released in March’s budget. But the Investment and Life Assurance Group (ILAG) has joined accountants in arguing the two innovations should not be treated separately.

Nicola Hayes, an ILAG director, said: ‘If stakeholder pension contributions are compulsory then little will be left to put into ISAs, and ISAs will be dead in the water.’

Mike Warburton, senior tax partner at Grant Thornton, added: ‘The two are definitely linked. If the pension is compulsory, then few of the people whom the government is trying to encourage to save will take up ISAs.

‘Conversely, if stakeholder pensions are not compulsory, then people will be attracted by the flexibility of ISAs and not bother with their pension.’

ILAG also suggests ISA and stakeholder pensions should be run by the same collection network. The National Association of Pension Funds has told the government that ISAs must have better or equal tax incentives to the stakeholder pension, if the pension is made compulsory.

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