The impact of automatic enrolment means pensions remain the most tax-efficient major form of saving, the Institute of Fiscal Studies says.
In a report comparing the impact of recent tax changes and charges, matching employer contributions make saving through pensions “much more attractive than almost any other option with the same underlying return”.
But it warns if the Government decides to replace the current system with a flat rate model set at less than 30 per cent higher-rate taxpayers would be “actively discouraged” from making pension contributions.
It says: “As far as tax is concerned, they would be better off saving for their retirement via an Isa or a more expensive home.”
Based on the current model the think-tank says: “Employer contributions to pensions are especially strongly favoured because of generous treatment in the National Insurance system. For a basic-rate taxpayer a contribution to a pension by their employer with a net cost of £70 is worth the same as a £100 contribution to an Isa.”
In addition, the IFS says charges and matching contributions from employers “may matter more than any tax differences”.
It says the new universal credit system adds a “huge disincentive” for the seven million families affected to hold more than £6,000 in cash or shares. However, the same people have a “very big” incentive to save into a pension as their earnings rise and universal credit payments fall.
The report also concludes investing in owner-occupied housing is significantly more tax-advantaged than buy-to-let property, even before recent changes to landlords’ tax position.
Report author Stuart Adam says: “The last few years have seen radical changes announced to the taxation of savings. These will take millions of people’s savings out of the tax net altogether.
“Ideally people might make savings decisions based on the underlying risks and returns of different assets. But taxes and charges can significantly change the relative attractiveness of different savings options. If people are unsure about how taxes and charges might change, their decisions become even harder.”