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MPs call for shake-up of pension tax relief

A cross-party group of MPs says the Government must review pension tax relief bands, including the tax-free cash lump sum, to see if resources could be better spent.

The work and pensions select committee report into the White Paper plans has called for the Government to investigate whether pension tax relief should be cut to fund increased state spending on pension benefits.

The report highlights two areas that MPs believe should change – the tax-free lump sum and the relief given to individuals who are higher-rate taxpayers when they make contributions but not when they get their pension income.

The report quotes evidence from Brunel Business School professor of finance and economics Philip Davis, who describes the tax-free lump sum as an anomaly and “it is the Exchequer giving away money”.

The LibDems will prop- ose changes to the pension tax relief system when their tax commission rep-orts in August and Labour’s former welfare minister Frank Field is one of a growing number of Parliamentary voices which are demanding reform.

The report says: “The overwhelming consensus, and the view of the Pensions Commission, appears to be that the resources alloc- ated to tax relief could be focused better. We strongly recommend that the Government looks again at the case for reviewing tax relief on pension saving.”

Richard Jacobs Pension and Trustee Services director Richard Jacobs says: “This would be the final death knell to pension saving as the tax-free lump sum is one of the biggest incentives to save. The day that civil servants give up their generous schemes is the day this can be allowed to happen.”

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