The Treasury Committee is proposing the abolition of the Lifetime ISA (LISA) and has called for the scrapping of the LTA limit around pension tax relief.
In its report on Household finances: income, saving and debt, the Committee said its inquiry has received strong criticism of the LISA over its "complexity, its perverse incentives, its lack of complementarity with the pensions saving landscape and its apparent lack of popularity with the industry and pension savers". The Committee also said the abolition of the LTA limit should be offset by a lower annual allowance and a flat rate of government tax relief.
The report emphasised the need for explicit government responsibility for household saving and financial resilience, with reporting in the Budget.
Furthermore, the Committee has recommended addressing the gender pension gap, with more women under-saving for their pension than men. Government figures show that men in the 55 to 64 age bracket have more than double the pension pot of women of the same age, thus affecting their income in retirement.
AJ Bell personal finance analyst Laura Suter said: "The Committee's report is wide ranging with a smorgasbord of suggestions and proposals that emphasise just how complex the long-term savings market has become in the UK.
"Complexity is the enemy of engagement, so the Committee is right to highlight measures to simplify things for consumers and help them manage their finances. However, the report looks at lots of different areas in isolation and arguably more could be achieved by an overarching piece of work that looks at the long term savings market as a whole and areas where it can be simplified to benefit consumers.
"For example, the LISA has introduced complexity but there is a danger that scrapping it 18 months after introducing it, just as the product is becoming established, would further dent consumer confidence in the savings market. Such a drastic move should be considered within the context of wider changes that could help savers."
Suter added that the scrapping of the LTA for pensions and controlling tax relief through the annual allowance would be a "welcome development and stop people worrying about good investment returns resulting in a tax hit".
"If a flat rate of tax relief encouraged more pension savings it would be a more positive outcome, but the report also concludes that tax relief does not work as an effective incentive to saving, so it's hard to see how it would make a significant difference. Before such a radical overhaul to the system we would want to see evidence that it would achieve the goal of getting more people saving for their retirement."
The report can be accessed here.
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