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Radical relief redraw

Higher-rate pension tax relief must be radically restructured to offer incentives employers and employees to contribute more into personal accounts and stop the scheme failing, said former pensions minister John Denham.

Speaking at an Axa fringe event at the Labour conference in Manchester on Tuesday, Denham said a combination of state pension and the NPSS will not come “remotely close” to enabling millions to enjoy a decent pension.

Southampton Itchen MP Denham said although it is right that the scheme focuses on the poorest he is still New Labour enough to realise the incomes of middle-earners are of great concern politically.

Denham, who has been tipped for a return to Government after resigning over Iraq, said more needs to be done to ensure this middle grouping get a decent retirement income, which he puts at over 50 per cent replacement yield.

He said if a limit to what the Government can require people to do has been reached, other solutions must be looked at to remove a big question mark over the whole NPSS.

One way is to restructure the pension tax relief system with savings from changes to higher rate relief channelled into incentives to employers and employees to contribute more than the minimum into the scheme, said Denham.

He also said changes to job ads that outlined a combined wage and pension package would help, which has been the subject of a private member’s bill by Denham.

He said: “We will need to revisit the way in which we structure the higher-rate tax relief on pensions because they clearly could be restructured in a way that would give much greater incentives to individuals and employers to put money into the schemes.”

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