UK pensions: Flat rate pensions tax relief would be “fairer” and encourage people to save more for their retirement, but pensions ISA would be a bad idea, says industry body
A single rate of pensions tax relief would make the system simpler, fairer and more sustainable, according to a statement made by the Association of British Insurers (ABI) over the weekend.
The ABI, which has been calling for reform to higher rate pension tax relief since 2013, has urged government to consider introducing what it calls a Savers' Bonus, which would offer a single rate of tax relief.
"The ABI has long called for reform to the pension tax relief system to ensure that the maximum number of people, especially those on low to middle incomes, save for their retirement," said Yvonne Braun, ABI director of long term savings policy. "A Savers’ Bonus is the best option available to government to encourage people to save and ensure they have a pension pot large enough for potentially significant costs during retirement.
"A single rate of tax relief would be simpler, fairer and more sustainable for all savers."
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Tax relief on pensions is currently applied at the same rate people pay income tax at.
The Association also slammed the idea of a pensions ISA – a system by which pensions contributions would be taxed while withdrawals would be tax exempt.
Braun remarked: "Taxing people’s pension contribution upfront risks putting people off making provisions for their retirement, and would significantly damage our economy in the long term by shifting the entire tax burden onto the working age population."
The Treasury ran a consultation into pensions tax relief between July and September last year. In last November's Autumn Statement, it was said that the results of this consultation would be announced in the Budget in March.
Read more: Pension lobby calls for flat rate tax changes
Last week, the Financial Times reported that chancellor George Osborne looked set to announce a flat rate of pensions tax relief in the upcoming Budget, with the rate most likely being set between 25 and 33 per cent.