CIPP survey on the proposal that tax relief on pension savings be doubled
16 February 2015
The Pensions Minister Steve Webb has announced plans to encourage pension contributions by introducing a 33% flat rate of tax relief meaning that savers would receive a £1 tax rebate for every £2 they pay into a pension.
This follows proposals in the report Retirement Savings Incentives, published by the Centre for Policy Studies, which suggested that tax relief on pension contributions should be replaced by a Treasury contribution of 50p per £1 saved, up to an annual allowance, paid irrespective of the saver’s taxpaying status.
The report states:
“If we are to catalyse a broad based savings culture, we need a highly redistributive incentives structure. A 33% flat rate of tax relief (i.e. 50p from the Treasury per £1 saved from net income, which could include employer contributions) would double the incentive that basic rate taxpayers currently receive. This is not necessarily intuitive; the doubling arises because tax relief is calculated on gross (i.e. pre-tax), rather than net amounts. But, for cost control purposes, it would have to be accompanied by a much lower annual allowance, i.e. well below today’s £40,000. In addition, to help broaden the savings base, the saver’s taxpaying status should be irrelevant.
It would make sense for employees’ income tax and NICs to be deducted from employers’ contributions, with the Treasury’s 50p paid gross, thus avoiding a potential cashflow issue for employees.”
The CIPP Policy team is keen to understand what individuals feel about this suggestion and has created a very quick survey to establish the impact this move would have on individual pension savings.
We would be very grateful if you could take a couple of minutes to complete this survey which will close on 2 March 2015. Thank you.