The Association of British Insurers (ABI) is putting pressure on George Osbourne to set a flat-rate pensions tax relief system, saying that it would be a massive boost to workers on an average income.
People on low to middle incomes account for most of the population and don’t appear to view saving for retirement as an investment. The ABI wants to introduce a Saver’s Bonus, meaning that all taxpayers are treated the same. Yvonne Braun, ABI’s director of long-term savings policy, said the Saver’s Bonus would “give a massive boost to the average worker’s savings.” Braun added, “A single rate of tax relief would be simpler, fairer and more sustainable for all savers.” It is thought that such a change might encourage low to middle earners to save more.
Currently, high income earners receive either 45% or 40% tax relief, everyone else only gets half that amount or less.
The Pensions and Lifetime Savings Association think, if it goes forward, the flat-rate would be around 25%. They don’t believe it will make much difference to the general population, nor benefit higher rate taxpayers, saying it would “greatly reduce” the attractiveness of contributing. Those who receive 40% relief would loose out by £1500. Average earners on the new 25% rate would only benefit by £500.
Will the Chancellor announce a flat-rate pensions relief in his March 2016 budget? It seems there would be only one clear winner if he does - the Treasury, at a 25% flat-rate, look to make an annual saving of £6bn.