Rachel Reeves: Chancellor must choose flat-rate tax relief


Former shadow work and pensions secretary Rachel Reeves has lent her support to a flat-rate of 33 per cent tax relief on pension contributions.

Reeves, who now sits on the Treasury Select Committee, describes the current rules as “unjust and ill-judged” for giving higher earners more relief than those on lower incomes.

“The Chancellor should set a flat rate of pension tax relief,” Reeves wrote in a letter in today’s Times.

“It would be simple, fairer and an important step towards boosting retirement savings. Figures of between 20 and 33 per cent for this rate have been floated.

“I believe it should be 33 per cent. This would be a welcome boost for basic rate taxpayers and a cut in the savings subsidy for higher earners, while still rewarding savings.

“Then, tax relief could be rebranded as a government-backed saving scheme. For every £2 that savers put towards their pensions, the government would contribute another £1 – a huge incentive to save for everyone.”

Separately, The Times reports that work and pensions secretary Iain Duncan Smith has given his blessing to proposals to radically overhaul taxation, moving to a system where pensions are taxed in line with ISAs.

According to the Times, Duncan Smith discussed options for reform with the Chancellor on Tuesday, and made it clear he would not oppose a pensions ISA.

It comes despite pensions minister Baroness Ros Altmann’s vocal opposition to the proposals, which she told Money Marketing would be: “a big mistake”.

Osborne is expected to announce his proposals for reform as part of the Budget on March 16.