A Government review of pension tax relief could be on the cards despite Treasury attempts to water down a statement which cast doubt on the future of current saving incentives.
Analysis from the Pensions Policy Institute, published on Monday, suggests there is “little evidence” that the £35bn a year spent by the Government on pension tax relief encourages pension saving among low and medium earners.
The report examines a range of alternative pension tax regimes, including introducing a single rate of tax relief at 30 per cent and capping the tax-free lump sum at £36,000.
In response, the Treasury issued a statement to Money Marketing which appeared to open the door to a new review of the current system. It said: “Pension tax relief is designed to support saving for retirement and that is why we offer a generous level of relief on contributions and investment growth.
“However, the Government understands the cost of tax relief is rising and there is a legitimate public debate to be had about how the Government can best support people to plan for their future.”
Following the publication of the comments on the Money Marketing website, the Treasury attempted to retract the second part of the statement. A spokeswoman insists policymakers have “no plans” to reform pension tax relief but she refuses to rule out future changes.
A spokesman for Shadow Chancellor Ed Balls says Labour wants tax relief for people earning more than £150,000 to be restricted to 20 per cent.
Asked if Labour would support a review of pension tax incentives, the spokesman says: “We have a proposal about top-rate taxpayers which we are pushing and which the Government should take on board.”
Cicero director and chief corporate counsel Iain Anderson says Chancellor George Osborne could use his Autumn Statement to announce a fundamental review of pension tax relief.