George Osborne opened up the possibility of an ISA style pension last summer and is set to announce findings of a review at the next Budget in March.

Yvonne Braun, ABI Director of Long Term Saving Policy, said: “We believe the Chancellor should rule out a Pension ISA. It is superficially attractive because ISAs are well understood and have been a success. More to the point, in theory it could raise considerable sums for the Exchequer which must be an enormous temptation given the fiscal climate.”

The ABI said it had formed this view after commissioning work by the Pensions Policy Institute and the National Institute of Economic and Social Research to assess a Pensions ISA.

Although the current system of providing pensions tax relief at people’s marginal rate of income tax is “ripe for reform” this particular idea should be axed, Ms Braun said.

She said: “A Pension ISA would not deliver on the Chancellor’s key reform principles. Most fundamentally, it would not incentivise savings.

“Research has shown that in a Pensions ISA world, employers would expect employees to value salary more than pension contributions, and to save less. Many employers would also reconsider how much they contribute to the pensions of their employees.

“Nor would a Pension ISA encourage personal responsibility. Our consumer survey shows that less than one in five trust future Governments to leave their pension savings untouched – wholly rational given no Government can bind future Governments, and the promise that people won’t be taxed when they access their pension can be decades away.”

Most importantly, she said, analysis showed that the macro-economic implications of moving to a Pensions ISA would be significant. The ABI said this move would depress GDP, savings, productivity and wages.

Ms Braun said: “This is because a Pensions ISA system moves the tax burden away from pensioners and onto the working age population.”

Instead of moving to a Pensions ISA, the ABI is advocating a Savers’ Bonus - a single rate of tax relief for all.

Ms Braun said: “We believe this would be a genuinely radical reform that would stand the test of time. A Savers’ Bonus will be much easier to communicate than the current system, ensuring people understand the benefit of saving into a pension.”

A green paper was launched after last summer’s Budget to give “careful consideration” to the Pensions ISA.

The Government has recently said that it will not be commenting officially until the March Budget when it will report findings from this review.