The Centre for Policy Studies (CPS) has called for pension tax relief to be scrapped in an attempt to aid low income savers and save the Treasury an estimated £10bn per year.
In a report, Five Proposals to Simplify Saving published yesterday, 27 August, the author, Michael Johnson, claimed pension tax relief should be abolished for a new scheme of tax-free, capped bonuses on individual and employer retirement contributions.
Additionally, the report called for a Workplace Isa to replace tax relief, which would hold employers’ contributions and that members would be locked in until they are 60 years old. It also proposed scrapping the minimum earnings threshold on auto-enrolment schemes.
The CPS publication was in response to the government’s recent work on pension tax relief reform and due to concern over Britain’s household savings ratio, which has fallen to its lowest level since records began in 1963 (4.9 per cent).
CPS director, Robert Colvile, claimed: “The proposals put forward in this paper would incentivise mass savings and save the Treasury an estimated £10bn a year. It is vital that reforms are made to that people can access financial products which suit their needs today, and in the future.”
The think tank also suggested replacing national insurance contributions with bonuses on employer contributions, which would be paid directly into the employee’s personal accounts.
However, some believe that the changes proposed would not have the desired effect.
Dentons Pension Management, director of technical services, Martin Tilley said: “There is no denying we have some fundamental issues to address when encouraging people to engage with pensions, but I am not convinced that the move from EET to TEE will present a more understandable proposition.”