A delegate poll finds support for national insurance being applied to employer pension contributions.
More than a third (36%) of those polled during a session on pension tax relief favoured the move, while 33% suggested the concession for defined contribution pots to be passed on free of inheritance tax should be removed.
Chancellor Rachel Reeves is scheduled to deliver her inaugural Budget speech on 30 October.
Andrew Harrop, former general secretary at The Fabian Society, said the pensions sector was likely to be targeted by the chancellor, as “the least bad space for her to go and try and raise a significant amount of money”.
The current system of pensions tax relief is “expensive and unequal”, he added, and outlined a number of principles that would make it more equitable.
“Tax relief on contributions – and throughout the investment journey – should not hugely exceed future tax revenues,” he said. “At the moment, most people can expect to get more tax relief than they actually pay in tax at the end.”
Harrop called for tax relief to be “broadly proportionate to people’s earnings and pension contributions” to avoid those with higher earnings receiving more tax relief and for it to be used to “incentivise and reward people doing the right thing”.
“It does look strange that we have a massive incentive for people to take lump sums rather than to keep their money invested and continue to earn income for their whole retirement,” said Harrop.
He also called for the income from any new tax to be recycled immediately for the benefit of demographic groups that typically save less, including the self-employed.
“Budgets are terrible devices for doing long-term, complicated tax reform,” added Harrop, arguing change would be better achieved “as a slow, gradual process, with lots of consultation”.
Steve Webb, partner at LCP and a former pensions minister, said that whatever changes are made, it is important for the government to avoid complex transitions.
He also explained that the government was looking for quick actions, despite pledges and assumptions that it would take a more long-term approach.
Further reading
PLSA urges caution on potential tax relief changes (10 September 2024)
Relief at last: Govt ‘backs down’ on pension tax changes (7 October 2024)
