At a fringe event co-hosted by B&CE at this week’s Labour Party conference in Brighton, Jory also demanded the state pension age be raised to 75 or 80, which would allow the Government to offer a much higher state pension to elderly Brits.
Jory said: “We would not have open-ended annuities, we would know we had to provide for ourselves until a specific age and then the state would kick in.”
This was a view echoed in a report published recently by the Centre for Policy Studies.
He also called for an independent pensions commission to focus on long-term strategy, similar to the Monetary Policy Committee.
Anyway, back to a flat rate of tax relief. Jory said a flat rate of tax relief on pension contributions of 30 per cent for all levels of income would encourage low to moderate earners to save for their retirement.
He said: “Far too much tax relief goes to far too few people. I believe that a 30 per cent rate of relief would act as a far greater incentive for low earners to save.”
How a 30 per cent rate of tax relief would work in practice is another matter and one that Jory did not address in the brief meeting.
Hargreaves Lansdown pensions analyst Laith Khalaf says HM Revenue & Customs would effectively have to top up the pensions of basic rate taxpayers from its own coffers.
But the money saved through stripping higher rate taxpayers of 10 per cent of the relief they currently receive on contributions would help cover the cost of boosting the pensions of low earners.
Khalaf says HMRC may introduce a cap on relief, whereby if a person for example earns £10,000 and pays tax of £2,000 they will only get 30 per cent tax relief up to the amount of tax they have actually paid.
This is a method currently used with some investment products.
He says: “Implementing a 30 per cent flat rate of tax relief would require a substantial redesign of occupational schemes, which already factor in the tax rate the individual has paid. The flat rare could either work on the basis that tax relief is simply paid on 30 per cent of contributions, whereby higher rate taxpayers would then subsidise basic rate.
“Or the 30 per cent could be capped at the maximum amount of tax the individual has paid. For basic rate taxpayers and some higher rate taxpayers this would then mean being unable to contribute 100 per cent of earnings and get tax relief.
“As for whether it is fair to equalise tax relief, I would simply point out one obvious fact that often escapes attention: higher rate taxpayers get a better pension deal but they do pay more tax.
“The pension system is not inherently unfair, it is simply a mirror image of the income tax system, which by the same measure is unfair. Those earning over £150,000 receive about a quarter of pensions tax relief or so the Treasury says, a lesser known or glossed over fact is that they pay about a quarter of the income tax take.
“One advantage of applying a flat rate of 30 per cent is that by divorcing pension tax relief from the income tax rates, we could have a stable and unchanging axle in the pensions wheel. You could go further and remove pension income from the income tax system, and apply a flat rate tax rather than income tax rates. The result would be a saving equation that does not change every time the Treasury tinkers with income tax rates.”
What is your view? Would 30 per cent tax relief be workable? Is it fairer? Would it actually work in encouraging those on lower incomes to save more for retirement?
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