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Pensions Minister Steve Webb has called for a 33 per cent flat rate to be introduced for pensions tax relief, replacing the 40 and 45 per cent rates for higher earners.
Mr Webb was speaking at an 11 February event organised by the Resolution Foundation think tank, titled Today’s Workers, Tomorrow’s Retirement Problem.
He told delegates: “You would be able to say to the public who don’t understand tax relief and don’t see it and aren’t incentivised to save by it, ‘For every £2 you put in a pension, the government will put in £1’.
“I don’t believe tax relief incentivises saving other than amongst the very rich, but that might actually have some impact.”
His comments were welcomed by the Centre for Policy Studies think tank, which last year published a report calling for tax relief on pension contributions to be replaced by a Treasury contribution of 50p per £1 saved, on the first £8,000 of pension savings each year, paid irrespective of the saver’s taxpaying status.
The proposal has won backing from the financial services sector, with Friends Life saying on 17 February that it would help to make pension saving fairer for consumers.
Andy Briggs, group chief executive at Friends Life, said: “Currently, higher and additional rate taxpayers make half of the pension contributions but benefit from 75 per cent of the tax relief. That has to change, to increase the pension savings of those that need it most.
“A flat rate of 33 per cent would be effective and easily understood by consumers as they would ‘buy two, get one free’ on their pension contributions.”