Pensions - Articles - Partnership's Steve Groves comments on Pensions Tax Relief

 "Pensions Tax Relief is designed to encourage people to save for their retirement. However this is simply not working in the current system for the vast number of people on low and middle incomes who currently lose disproportionately as they receive the minority of tax relief.

 "Pensions Policy Institute (PPI)'s research shows that although Basic Rate Tax payers make 50% of the total pre-tax-relief pension contributions, they only benefit from 30% of pension tax relief. In contrast 50% of pension tax relief goes to higher rate taxpayers and 20% goes to additional rate tax payers.

 "The 30% single rate option for Pensions Tax Relief analysed by the PPI alongside other reform options - which is a seemingly simple intervention, albeit with implementation challenges - can really make pension savings more effective and attractive for the majority, at a limited cost to the Government. "

 In this option according to PPI research the:

 Cost to the state would remain around £35 bn.
 Lower and middle earners would benefit and the proportion of tax relief for lower earners would increase to 50%.
 Basic Rate taxpayers - could expect to see the capitalised value of their income and lump sum increase by just under 15%.
 This would of course result in a realignment of tax relief going to higher and additional rate taxpayers from 70% to around 50%.

 Groves added "A bold intervention to ensure that the current system is efficient and fair - may not only ensure that many of our poorest and most vulnerable benefit more from pension savings and also encourage new savings.

 "It will also help our youngest and future generations from bearing the tax burden of meeting the increasing needs of the many who might continue to fall on means tested benefits if the current system is not reformed.

 "Higher Rate Taxpayers would still benefit - although not to the level they currently do under the current pensions tax relief system."

 "Few debates or issues could be more relevant to our society today. I would urge the Government and policy makers to consider this important research paper in greater detail."