The Government is considering reform to pension tax relief which would provide bigger incentives to save for younger workers rather than older savers.
The Times reports the Treasury is considering a policy proposal where the Government would offer different top-ups to pensions contributions based on the individual’s age.
Under the proposal, the Government would offer £1, minus a person’s age, for every £1 they pay into their pension. A 25-year old would receive a top-up of £75 for every £100 invested while a 60-year-old would get a top-of £40 for £100 saved.
The Treasury is also said to be looking at cutting the annual allowance from £40,000 to £20,000, as part of efforts to keep the costs down of the new system.
Speaking at a fringe event at the Conservative party conference last week, the parliamentary private secretary to Chancellor Philip Hammond said the idea was “consistent with a Government that wants to help working people.”
John Glen, a Conservative MP said: “There is a massive advantage to incentivising young people because the pressures on expenditure for them are much higher. So, therefore, to create an incentive that is significant . . . is clearly a very good policy driver.”
Hargreaves Lansdown has drawn up the proposal. In its document setting out the plans, Hargreaves says: “The younger you are when you invest, the more your savings are worth in the long run, so it makes sense for the government to load its incentives towards younger ages. A top-up which declines with every passing year presents an opportunity for a simple and relentless message from industry and government, to save now rather than putting it off until tomorrow.”
It is unlikely the plans will be approved before the Autumn Statement next month.
A Government source told the newspaper all tax reliefs were “under review”.
A statement from the Treasury says: “Responses to the pension tax relief consultation last year clearly showed there was no consensus for reform.
“The government concluded that with the lack of consensus and the rollout of automatic enrolment ongoing, now was not the right time to undertake fundamental reforms to the pension tax system.”