Replace pensions tax relief with bonuses, proposes think tank

03 September 2018

The Centre for Policy Studies (CPS) has published a report which includes the recommendation to abolish tax relief on pensions and replace it with bonuses on individual and employer retirement savings contributions.

According to the CPS the complexity, cost, and inflexibility of the pensions system, combined with widespread distrust of the pensions industry, is putting basic rate taxpayers off saving for their futures with young people, Generation X and Y, increasingly disengaged.

With savings rates falling and the top 1% of earners receiving double the pensions tax relief of half the working population, the time has come to reform the system, says the CPS.

The report sets out five main proposals to broaden the country’s savings base and save the Treasury money:

  • Abolish tax relief on pensions and replacing it with bonuses on individual and employer retirement savings contributions. Crucially, the bonuses would be disconnected from tax-paying status

  • Introduce a generous cap on the total bonus any individual can receive in one year

  • Reform auto-enrolment to scrap the minimum earnings threshold

  • Replace NICs rebates with bonuses on employer’s contributions, paid directly into the employee’s personal accounts

  • Introduce a Workplace ISA to house employers’ contributions, locked in until age 60


The CPS state that “these reforms would particularly benefit low-income earners who save passively: today, they gain the least from tax-related incentives. They would also boost gender equality and tackle the “net pay” problem. Furthermore, these reforms, if combined with replacing “band earnings” by “total aggregate earnings” for determining automatic enrolment (AE) contributions, would bring many more (low paid) people into AE’s embrace.  And the process for determining AE contributions would be substantially simplified.  Indeed, implementation of these reforms would dramatically simplify the savings landscape for people in all income brackets.”

The report ‘Five Proposals to Simply Savings’ is available to download from the Centre for Policy Studies website.