UK - Tax relief on pension contributions should be changed in a bid to tackle the growing pension crisis, new independent research proposes.
The report – commissioned by Aberdeen Asset Management – said that, at present, lower income groups do not have the money needed to save in a pension and could be better suited to other savings options.
As a solution, it proposed replacing tax relief on pensions with a system where the government paid a specific amount into an individual’s pension fund for every pound of contribution made by an employer or employee.
The research formed part of a report examining the impact of changing the system of tax relief, entitled Modelling Changes to Pensions Tax Relief.
The report found that if the Treasury paid 40 pence for every pound contributed by workers and firms up to £14,000 per annum – equivalent to tax relief of around 28% – it would lead to a significant increase in pensions savings among low and medium paid workers.
Aberdeen Asset Management said this research showed that this system would encourage greater pension saving among low to medium paid workers and save the Treasury £400m per year in reducing tax breaks for higher earners.
Head of marketing development Piers Currie said: “The legislation which, in its Green Paper, the government says it plans to introduce, will be a once-in-a-generation consolidation of pensions rules.
“It also offers, we believe, a golden opportunity for government to re-examine the issue of tax relief on pensions contributions and for the government to decide what it wants to achieve, for which group, and at what cost.”
The research was a collaborative effort undertaken by pensions expert and LSE governor Ros Altmann, the Adam Smith Institute and Datamonitor’s David Perry.
The report was written and co-edited by Piers Currie.
The full report is freely available from Aberdeen Asset Management by calling 020 7463 6339.