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Think tank warns Govt could cut tax relief to pay for universal pension


The Government may abolish pension tax relief to pay for the increased cost of introducing a flat rate state pension, according the Institute of Economic Affairs.

In his latest IEA blog, editorial and programme director Philip Booth predicts a “back door” tax rise.

He writes: “I suspect Steve Webb will say that tax relief on private pensions is ‘unfair’. He will argue that it is unnecessary if the state pension is not means tested – if people cannot become a burden on the tax payer why, he will argue, should people be encouraged to make extra pension provision.”

He adds: “In effect, by this “back door”, taxes will go up to finance a long-term increase in state pension provision.”

The Government announced earlier this month that tax relief on pension contributions will remain at the full marginal rate with the annual limit reduced from £255,000 to £50,000 per year.

Webb announced plans for the new flat rate pension of £140 per week earlier this week, but few details have been given over how it would be paid for other than by reducing administration costs.

Booth says the reforms should reinforce the contributory principle. He adds: “Each year for which somebody pays national insurance contributions, they should earn an entitlement to a fraction (for example, one fortieth) of a given pension and this should be indexed to prices until retirement.”


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There are 11 comments at the moment, we would love to hear your opinion too.

  1. So who’s likely even to consider allocating money to a pension plan if there’s no tax relief? The government might as well just announce the end of private pension plans instead of floundering around talking about auto-enrolment schemes.

  2. Jennifer Nicholls 27th October 2010 at 1:47 pm

    OMG they are going to make a complete hash of things. I’m losing the will to live now.

  3. By the same logic could we argue that the public sector no longer need to have their non contributory index linked pensions either?

    I wonder how much the state pension would be if all public sector pensions were axed?

    If tax relief is axed, then it does create a total division between private and public pensions.

  4. Then he is an idiot (sorry) I bet he is not planning to live on £140 per week when he retires. their will still be a requirement to supplement the state pension unless they are going to increase it above £12,500 p.a.each at todays’s values. Better stop now. These so called think tanks should be dumped and their cost can contribute to helping the poor

  5. It would certainly solve the ISA v Pension conundrum:

    Do I want to keep control of the first £10200 I invest every year (which I would dare to suggest covers all of the spare cash most of the population have) or give it up for the sake of creditor protection? I know where my money would go but I cannot see the pension industry standing idly by while they go down the toilet.

  6. Brown taxed dividends now no tax relief,what next? where is the advantage for the average man in the street?

  7. Thank goodness it is only a prediction, perhaps Philip Booth should give the correct position when it is known rather than speculate and cause uncertainty in the market. The £140 flat rate pension is the best piece of news in a very long time for pensioners particularly those that were promised a pension in line with National Average Earnings. So let us stop the nonsense and for once be positive, I am sick of people postulating doom and bust.

  8. From what i can see this is not official information from the coalitoin government. There has been so much outright nonsense printed by the media recently, which i’m sure is just to fil column inches.

    Kind of like sports pages and how they drag out transfer stories over the summer or stacks of pages on Wayne Rooney’s contract problems.

    For the last 5 years i have been hearing that tax-free lump sums from pensoin schemes will be scrapped.

    For the last 10 years i’ve been hearing that there’ll be no state pension in 10 years time.

    Unfortunately many people beleive what they read and so this is all really unhelpful.

  9. Surely the cost will be covered by the fact that middle and high earners will no longer be able to contract out and will still be paying NI which will no longer go towards S2P/SERPS benefits.

  10. What an utter load of nonsense.

    Why do these stupid ideas even get the time of the day? Whats worse is when advisers actually believe such rubbish.

  11. These unfounded comments should go into the same bin as all the global warming crap !

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