An influential actuarial trade body is drafting radical pensions tax relief reform proposals that would see both the annual and lifetimes allowance abolished.
The Association of Consulting Actuaries, which worked closely with the DWP on defined ambition reforms, is refining plans to scrap tax relief on pension contributions altogether and replace it with a matching contribution from HMRC.
The match would be subject to a monetary ceiling, allowing the Government to control the level of incentives it provides towards saving for retirement and ensuring the system is less skewed in favour of wealthier savers.
As a result of the changes, the ACA believes the annual and lifetime allowances could be removed from the pension system altogether.
KPMG partner and ACA chairman David Fairs says: “We had a degree of simplification in 2006 but with some quite complex pieces around what happens when people hit the annual allowance and the lifetime allowance.
“As the annual allowance, in particular, has been reduced significantly it has impacted more and more people and we are starting to see some of the complexity in the legislation being not quite what the Government intended.
“On top of that, the DWP wants to encourage risk-sharing schemes with a target benefit but the risk under the current system is if you achieve that target you will get taxed.”
The ACA plans to produce a document detailing its proposals which will then be circulated to politicians, the DWP and the Treasury.