The current system of pensions tax relief should be scrapped to tackle intergenerational inequality and generate revenue, pensions expert Michael Johnson says.
In a speech at Money Marketing’s annual retirement summit, the Centre for Policy Studies research fellow argued the status quo is fundamentally unfair to Millennials aged 18 to 40.
He described the system as “regressive” and also pointed out demographic shifts and intergenerational inequality will force the government to take action to prevent a collapse in revenue.
Johnson said: “Tax relief is regressive and it cannot be ignored as just over half of adult population do not know what pensions tax relief is. Freedom and choice got rid of the annuitisation requirement because the Treasury does not need to be repaid for the relief it provided to buy an annuity in the first place.
“If we get a Labour government scrapping tax relief is the first thing they are going to do. I have spoken to Jeremy Corbyn and John McDonnell and they will do that.”
He advocated moving to an Isa style system of relief on contributions that would be the same for everyone regardless of income bracket.
Johnson also argued the government should introduce a wealth tax on house sales to prevent a collapse in revenues alongside reforming tax relief.
He also pointed out Millennials are now 50 per cent of the workforce but only pay 8 per cent pay the top rate of income tax.
But the fact Millennials will be 75 per cent of the workforce in 2025 combined with declining levels of home ownership present a challenge for the Treasury.
Johnson said: “We are seeing one of the most dramatic demographic shifts in history. If you look at a pie chart of UK wealth, about 42 per cent is in pension assets and 36 per cent in homes. Within the next few years we will introduce a sales tax on property, otherwise I do not know where the revenue will come from.”