WIREDGOV

Commenting on new pension tax relief research published yesterday (Monday) by the Pensions Policy Institute (PPI), TUC General Secretary Frances O'Grady said:

'Tax relief is an important way to encourage pension saving but the benefits are currently far too skewed towards the very wealthy.

'It cannot be right that basic rate taxpayers make the majority of all pension contributions but receive less than a third of the total tax relief budget. Additional rate taxpayers, who earn at least £150,000 and represent the top one per cent of earners, receive 17 per cent of all tax relief.

'The PPI report also highlights a serious flaw in the current tax relief system, with many people receiving relief at the higher or additional rate, but then becoming basic rate taxpayers in retirement.

'Hundreds of thousands of wealthy pensioners are likely to be benefiting from this anomaly, having effectively avoided income tax on a portion of their earnings during their working life.

'With the cost of pensions tax relief set to rise to £35bn a year, the case for a simpler, fairer system is stronger than ever.'

The report analyses a number of proposals to reform pensions tax relief, including the introduction of a flat rate for tax relief and a cash limit on lump sums in retirement that are eligible for tax relief.

Frances O'Grady added: 'The TUC fully backs the proposal to set a flat rate of tax relief at 30 per cent. This would transfer some of the benefits from the very wealthy to lower and middle income earners without any additional cost to the Exchequer.

'Tax relief on lump sum payments is even more skewed towards the super rich, with the two per cent of lump sums worth over £150,000 accounting for almost a third of all expenditure.

'The government must consider a cash limit on lump sum tax relief. A limit of £36,000 would halve the cost of tax relief without affecting the vast majority of pension savers.'

Key facts from the PPI report:

• More than half of all pension contributions are made by basic rate taxpayers, who receive less than a third of pension tax relief.
• Higher rate taxpayers contribute only 37 per cent of all pension contributions yet receive the majority of tax relief.
• Additional rate taxpayers contribute 9 per cent and receive 17 per cent.

NOTES TO EDITORS:

- The PPI research can be downloaded from www.pensionspolicyinstitute.org.uk

- The TUC has part-sponsored the PPI research, along with Age UK, Partnership and The Institute and Faculty of Actuaries.

- The TUC's campaign plan can be downloaded from www.tuc.org.uk/campaignplan

- All TUC press releases can be found at www.tuc.org.uk

- Follow the TUC on Twitter: @tucnews