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PPI to probe effectiveness of pension tax relief

Influential independent pension policy think-tank the Pensions Policy Institute plans to analyse the effectiveness of tax relief ahead of next year’s Budget.

The March Budget this year was preceded by speculation that the Government would either reduce pension tax relief for higher-earners or scrap higher-rate relief altogether.

Labour has pressed the Government to redistribute some of the £20bn a year it spends on pension tax relief.

The PPI plans to undertake a review of tax reliefs to establish the effectiveness of the current system in encouraging people to save and consider the implications of alternative policy options.

PPI director Niki Cleal says: “The first part of the research will look at the effectiveness of the current system of tax relief, including how much it costs, who benefits and whether the current tax relief system achieves its objectives and is well understood.

“Part two will look at the implications of introducing alternative policy options for incentivising pension saving. The precise policy options we will look at have yet to be finalised but might include a system of matching contributions or considering the impact of having a single rate of tax relief.

“This is a project we hope to start working on this year, provided we are able to secure sufficient funding from the industry. Ideally, we will publish the final research report before the next Budget.”

If the PPI does secure funding for the report, it will be the first time the organisation has reviewed pension tax relief since 2004.

Hargreaves Lansdown head of pensions research Tom McPhail says: “If there are going to be any changes to tax relief in the future, they need to be introduced in a measured way, so a thoughtful piece of research from the PPI looking at the whole system would be a good place to start.”

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