View more on these topics

Britain must scrap ‘regressive’ pensions tax relief

CPS research fellow Michael Johnson

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.”



Labour outlines plans for new property taxes

A Labour government would seek to bring in a progressive property tax to replace council tax and eradicate stamp duty for those buying property to live in themselves. This would be payable by owners rather than tenants, and empty homes and second homes would be taxed at a higher rate, along with the capital gains […]


Pension tax relief goes begging for low-paid workers

Around 1.75 million low-paid and part-time workers could be missing out on pension tax relief, half a million more than previously thought, according to new data. Royal London has estimated that £60m is being given up by the workers caught between the threshold for automatic enrolment in a pension scheme – £10,000 – and the […]

A female Caucasian doctor and a young girl of African descent are indoors in a hospital room. The girl has cancer. She is being comforted by her doctor while being hooked up to an IV.

Government offers NHS doctors more flexible pensions

The government is looking to make pensions more flexible for senior doctors under new proposals. In recent months, fears over staff attrition in the NHS have increased, as doctors and medical organisations report increased cases of senior staff working fewer hours, opting out of the NHS Pension Scheme, or retiring earlier due to the tax […]

Warehouse workers portrait in work overalls. Workplace pensions article

What does value for money in a DC default look like?

Lorna Blyth – Head of Investment Solutions The phrase ‘value for money’ is fast becoming a favourite phrase of the pensions industry. The regulator sees ‘value for money’ as a key outcome for workplace pension members and as a result both providers and Independent Governance Committees (IGCs) are keen to evidence it. But what is it […]


News and expert analysis straight to your inbox

Sign up


There are 14 comments at the moment, we would love to hear your opinion too.

  1. Linked in Profile
    Michael is an unsalaried Research Fellow at the Centre for Policy Studies (CPS), and Adviser to Smarterly, a Workplace ISA provider.

  2. He also has the ear of government and initiated the workplace ISA concept some years before taking up any consultancy positions.

  3. George Hughes 7th June 2019 at 2:03 pm

    is it tax relief or just deferred tax on income for the future?

    • Depends on your marginal rate when contributing and drawing. The tax free lump sum cuts the marginal rate on payment – as does the pension income possibly being the main source – so in general it’s mostly tax relief. The basic rate in retirement would have to rise considerably to be considered wholly deferment.

  4. I would have liked to have heard Michael’s assessment of the impact of his proposals on British businesses in which pension funds are major investors.

  5. Roger Lawrence 7th June 2019 at 2:34 pm

    It was said on R4 this morning. Government should stop listening to people that say, and start listening to those who do.

    The trouble is, there are not many of the latter as they are too busy paying for the former. Otherwise you get these amoral cranks with no practical concept of “conflict of interest” that are happy with tax being progressive when its being paid and yet regressive when its being relieved.

    • Quite, you can only get tax relief on tax that you have paid. Therefore the more tax you pay, the greater the relief you might receive.

      Remember, that the wealthy receive very little of the tax they pay back in public services whereas the lower 50% of the population get back 100% of their tax.

  6. An extra wealth tax on property sales will stop the housing market overnight.

    Look at the damage that stamp duty does.

    A sensible option would be to reduce stamp duty on older people downsizing to prevent them sitting tight in big houses that could then be bought by families.

  7. Julian Stevens 7th June 2019 at 3:32 pm

    But if tax relief on pension contributions is removed, so too will have to be restriction of access to funds before a specified age. If it isn’t, what will be the incentive for people to lock away money on a long term basis for their retirement? They’ll just do ISA’s instead (if they do anything at all) and dip into them willy nilly whenever they need a new car or a home extension or fancy an expensive holiday. By the time they reach retiring age, their retirement pots will have been so regularly and irresponsibly plundered that by the time they reach retiring age there’ll hardly be anything left of them.

    The fundamentals of the present system may be rather less than perfect (and much of the rest is chronically over-complicated), but at least there are incentives to commit money to a pension plan over the long term. Remove those incentives and there’ll be even more people putting away too little or nothing at all for their retirement than there are now.

    There are two sides to every coin.

  8. If you think the government have a problem now wait for an even larger social care issue if tax relief is scrapped.

  9. The fact that Milennials pay only 8% of the Top Rate Tax in 2019 does not mean that they will still pay 8% in 2025.

    More will attain the roles where higher pay is earned.

    Secondly, what is the relevance of what Corbyn will do given the chance.

    Incidentally, is he going to replace it with something else, or is it just a tax grab. I suspect the latter.

  10. Pension without tax relief ….

    Eeerrr, is that not an ISA (of sorts) ?

    Me thinks this bloke has just had a “eureka” moment and re-invented the wheel

    • Michael Johnson 11th June 2019 at 12:54 pm

      Unfortunately this article fails to mention my proposals to replace tax relief with bonuses, as 50% on the first £2k saved and 25% on the next £8k saved, all within an ISA framework.

      Disconnecting the incentive from tax-paying status would (i) be redistributive, with a larger incentive for those who find it hardest to save; (ii) put an end to the Lifetime Allowance issues (and no need for an annual allowance); (iii) remove the risk of future tax rises (as drawdown would be tax-free); (iv) end the “net pay” debacle; and (v) those on multiple low incomes could aggregate their contributions for AE bonus purposes (unlike for pensions tax relief).

Leave a comment


Why register with Money Marketing ?

Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

News & analysis delivered directly to your inbox
Register today to receive our range of news alerts including daily and weekly briefings

Money Marketing Events
Be the first to hear about our industry leading conferences, awards, roundtables and more.

Research and insight
Take part in and see the results of Money Marketing's flagship investigations into industry trends.

Have your say
Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

Register now

Having problems?

Contact us on +44 (0)20 7292 3712

Lines are open Monday to Friday 9:00am -5.00pm