Tax relief on pension saving should be evened out

Tax support for pension saving should be spread more evenly – reducing subsidies where they are overly generous and increasing them where saving incentives are weaker states a new report from the Institute for Fiscal Studies (IFS).

In A blueprint for a better tax treatment of pensions IFS researchers propose several changes which they believe could be revenue-neutral in the long run and even in the short run.

First they suggest reforming the 25% tax-free component. At a minimum this should be capped so that it applies only to 25% of say the first £400 000 of accumulated pension wealth: this would still leave about four-in-five of those approaching retirement unaffected. Going further the report suggests replacing the tax-free component with a new subsidy. This could be designed to be as generous as the existing system to basic rate...