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Thinktank calls for higher taxes on wealthy pensioners

Thinktank Reform is calling on the Government to end special treatment for pensioners and make them pay hundreds of millions more in national insurance contributions.

In a research paper called “mind the (fiscal) gap: direct taxes, public debt and population ageing”, authors Dr Patrick Nolan, Professor Nick Bosanquet and Clare Fraser argue current policies “favour” older taxpayers.

They say an ageing population is changing the way we should think about pensioners in the tax system.

The report’s key proposal is to end to pensioners’ exemption from employee or self-employed national insurance contributions.

Only those earning above the state pension income are eligible for the exemption and Reform says this amounts to just 6.3 per cent of pensioners.

It estimates that ending NI exemptions for pensioners would raise £735m and only affect the richest.

The paper also wants pensions tax relief reform and an end to age-related personal allowances.

The Government is already phasing out age-related allowances in the so-called “granny tax” raid in last year’s Budget.

The £10,500 over-65 allowance was frozen last year until the rest of the personal allowance, rising to £10,000 next April, reaches the same level.

The Treasury has also welcomed a debate on pensions tax relief, as has the Association of British Insurers.

Reform research shows 33.8 per cent of tax relief is spent on 45-55 year olds and just 2.4 per cent on under-25s. It estimates 58.8 per cent of all relief goes to the top 10 per cent and 87 per cent of all relief, or £30.5bn, goes to the top 30 per cent.

The report has no specific recommendations on relief but says it needs reform as it is “expensive, poorly targeted, fails to achieve its policy objectives.”

Pensioners also enjoy the triple lock increases to state pensions, rising at the rate of inflation, wages or 2.5 per cent, whichever is highest. They also receive universal winter fuel allowance, free TV licences and bus passes.

The paper says: “Pensioners receive support from the state through state pensions and means-tested benefits. However, they are also treated more generously by other parts of the tax and benefits systems.

“Favouring pensioners, without recognising variations in ability to work, is not a sound use of tax revenue.” 

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  1. Reform research shows 33.8 per cent of tax relief is spent on 45-55 year olds and just 2.4 per cent on under-25s. It estimates 58.8 per cent of all relief goes to the top 10 per cent and 87 per cent of all relief, or £30.5bn, goes to the top 30 per cent.

    There’s lies, damned lies and statistics.

    Of course 45-55 year olds and higher earners are going to receive more tax relief – they contribute more into pensions as this is probably the first time they have sufficient income to do this.

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