Several voices in the pensions industry have raised their concern at reports of the Chancellor planning to shake-up pensions tax relief, by cutting tax relief for older people.

Such a move would be aimed at trying to close the intergenerational gap, something that has gained momentum following an inquiry by the Work and Pensions Committee in 2016, which found the “economy has become skewed in favour of baby boomers and against millennials”.

PMI president Robert Branagh explained that in September, Chancellor Philip Hammond asked backbenchers for ideas on how to close the intergenerational gap. It was later reported in The Telegraph that Hammond was preparing a ‘tax on age’ and has plans to cut National Insurance contributions for those in their 20s and 30s by slashing tax relief for older workers.

Branagh said this idea has “gained a lot of traction” but the move would continue to put more complexity into the tax system. Despite this, he can see the political attraction as a way to balance the intergenerational scale.

However, Royal London director of policy Steve Webb believes the idea is “exceptionally unlikely” and a “very bad idea”. He said it seems hard to believe that the government would spend on pensions in an attempt to win over younger voters, rather than home buying and stamp duty. He also think that there are a number of flaws.

“First of all, it adds complexity to the system, with employers having to administer different rates of tax relief for different employees. Secondly, if you give more tax relief to younger workers, their ‘birthday present’ each year would be a cut in their take-home pay as their tax relief is reduced. That seems a very odd thing to do. Finally, it’s very hard to see how this would work for millions of public sector workers (and others) who are still in DB schemes.”

In addition, Liberty SIPP director of sales Matthew Rankine said: “The Chancellor is reportedly planning to increase the pension tax relief offered to younger savers, a giveaway that might be funded by reducing the tax relied offered to older savers. Yet younger people already have a big advantage when it comes to pension saving. It’s a seemingly magical phenomenon called compound interest.

“But that fact has failed spectacularly to encourage most young people to get into the pension habit, as 20-somethings are often too busy struggling to pay off student debt or scrape together a deposit for a home to start pension saving. If they don’t have the spare cash in the first place, offering them extra tax relief will do little to nudge them into saving for retirement. Conversely, those who have left it late to start a pension need all the help they can get."

Another option the Chancellor could be considering is moving from a higher and lower rate tax relief to a flat rate of tax relief. But as Barnett Waddingham senior consultant Malcolm McLean noted, although not solely directed at younger people but would benefit many of them as part of the wider lower income community.

“I would support the introduction of a single flat-rate of tax-relief which would be higher than the present 20 per cent level but lower than the 40 per cent one- say around the 25 per cent mark. That would not be directed solely It would be promoted not so much as the scrapping of higher rate tax-relief but as a measure to provide more help and support low to middle earners towards saving for a pension. It would also be essentially simpler and easier to explain which has to be a good thing," he said.

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