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ABI looks at equalising tax to encourage saving

The ABI is looking at what effect an equalised tax relief rate of 30 per cent for both higher-rate and basic-rate taxpayers would have on pension savings.

It has commissioned consultants to assess whether cutting relief for higher-rate taxpayers and increasing it for basic-rate taxpayers would raise the rate of saving for ret-irement among less wealthy people without discouraging wealthier people. If it produces a compelling argument, the ABI will submit the idea to the Pensions Commission.

Scottish Life group head of communications Alasdair Buchanan says the idea will not equalise tax as it will make pension saving tax-neutral rather than tax-efficient for higher-rate taxpayers. He says basic-rate taxpayers would gain but higher-rate taxpayers who pay higher-rate tax on their retirement income will lose out.

ABI head of pensions and savings Joanne Segars says: “The ABI is doing research on 30 per cent tax rate for everyone on pension contributions and what effect it would have on savings levels.”

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