Pensions tax relief should be abolished for all employees and the state pension should be increased by 60%, according to Michael Johnson, research fellow policy group at the Centre for Policy Studies.
Johnson made his case to delegates attending the Employee Benefits Pensions Summit, which began at the Four Seasons hotel in Hampshire today, during his session What is next for pension policy and long-term saving?
He claimed pensions tax relief did not make saving into a pension any more appealing for younger workers and that the £27.1 billion lost by the government in tax breaks should be used to boost the state pension.
“[Removing tax relief] would not cost the government a penny, it would move everybody above the pension credit threshold,” he said. “Tax relief is a lubricant for the pensions industry, which is a diabolical industry by and large.”
In addition, Johnson argued the government was not getting the right amount of money back for the tax relief it grants on pensions because the income tax taken on a pension scheme member’s retirement income, 25% of which is essentially tax free, does not provide enough revenue.
“For every seven people in this country in the 40% to 50% tax bracket, only one pays between 40% and 50% on income in retirement,” he said.
In the panel debate that followed Johnson’s session, Neil Carberry, head of employment and pensions at the Confederation of British Industry (CBI), said that the retention of pensions tax relief was necessary for the UK to remain competitive in the global economy because it attracts high-end talent.