Higher earners have likely benefited from chancellor George Osborne's decision last week to push back any pension tax changes, but the majority of earners are now missing out, a report released today argues.
According to the research by the Resolution Foundation, if Osborne had unveiled a flat rate of relief of 30 per cent at next week's Budget, a 30-year-old on an average salary who is saving at the rates required under auto-enrolment would have seen a boost of £11,200, or 13 per cent, in their pension pot by the time they reached retirement. On the other hand, somebody bringing home £60,000 a year would have missed out on £22,000, a fall of 14 per cent.
Meanwhile, a pensions Isa – which would see contributions to pensions be taxed but withdraws become tax-exempt – could have increased the average worker's pensions savings by 26 per cent, or £21,400, but it would have decreased the higher-paid worker's by 12 per cent, or £19,700.
"The chancellor was right to look at changes to pension tax relief, which is very expensive and disproportionately benefits higher earners," said Adam Corlett, economic analyst at the Resolution Foundation. "The savings challenge our country faces is to boost the retirement incomes of low-income households – not give tax breaks to high earners – and that should be the priority for reform."
The report states that the current pensions system is setting government back just less than £35bn a year, while the top one per cent of taxpayers rake in 13 per cent of total tax relief, making the argument for reform very strong.But not if it upsets the Tory chums in the City.