The government has rejected the Treasury Committee's call for fundamental and incremental changes to pensions tax relief, noting there is "no clear consensus".
HM Treasury said it was aware that any changes to the pensions tax relief regime, such as moving to a flat rate, could have a "significant impact" on pension schemes, employers, and individuals.
In its response to the committee's July report, the Treasury pointed to recent policy changes, including restrictions on the annual allowance for those with an income over £150,000, and its reduction of the lifetime allowance from £1.25m to £1m rising annually in line with inflation. Both changes took place in 2016.
It added: "These changes allow savers to continue to make significant pension savings tax-free, while ensuring sustainability of public funds, and that incentives to save are targeted across society."
The Treasury Committee had argued that tax relief was neither an "effective or well-targeted way" of encouraging people to save into pensions, especially among lower-paid earners.
Concerns have recently been expressed by industry heavyweights that discrepancies between the tax relief treatment of those in net-pay and relief-at-source schemes are causing lower-paid earners to miss out under the current system.
The Treasury said it would "keep all taxes under review". Earlier this week, HM Revenue & Customs (HMRC) said it would review opportunities to address the net-pay issue, while the Treasury was reported to be considering cutting tax relief in the upcoming Budget.
AJ Bell senior analyst Tom Selby said "ripping the roots from the pension tax system just as auto-enrolment (AE) is bedding in would have been a monumental gamble" for the chancellor, risking a backbench rebellion.
"More importantly, it would risk the fragile savings culture being nurtured in the UK through AE," he continued. "Lack of saving remains arguably the biggest challenge facing society today, so anything that could potentially damage this needs to be avoided at all costs."
Self-employed and triple lock
The Treasury also reiterated its commitment to find an effective, alternative approach to include self-employed workers in AE, a pledge it made in last year's statutory review of the programme.
It further said it will continue its commitment to keep the triple lock - which increases the state pension each year at the highest of either inflation, growth in average earnings, or 2.5% - in place for the rest of this parliament, despite the committee having argued it is "unsustainable" in the long-term.
According to the government's response, the triple lock has "lifted the incomes of millions of older people" and played a part in reducing pensioner poverty to "historically low levels".
The response said: "Since the introduction of the triple lock in 2011-12, the average pensioner household has seen their income after housing costs increase by 8.7% above the rate of inflation. Pensioner incomes are at record levels at £307 per week."
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