The Centre for Policy Studies has written a research paper, currently under review in the House of Lords and due to be published in April, suggesting that pensions tax relief does little to improve savings rates and should be scrapped.
The CPS said its research showed that only 15 per cent of savers were motivated by tax incentives meaning the Treasury could ditch them and save billions without harming national savings rates.
Speaking at Dentons Pensions’ Sipp breakfast seminar, CPS research fellow Michael Johnson revealed he had already pitched the policy to the Treasury and confirmed he was meeting with Labour leader Ed Miliband last week.
Mr Johnson said instead of paying tax relief the Treasury should contribute 50p for every £1 saved to individuals, up to £4000 a year paid irrespective of the taxpaying status of the saver.
He also proposed the government unify Isa contributions limits and pensions allowances at £30,000 bringing the wrappers together as a lifetime Isa which he said would “comprise a cash bucket - today’s cash Isa - and an investment bucket eligible for the Treasury’s 50p”.
Mr Johnson said: “This comes having spent a lot of the past two months with the ermined lot in the Conservative and Labour parties thinking about the future of tax relief and in fact whether we should scrap it entirely.
“That of course begs the question of what is the future for private pensions. I’ll be up front, I think private pensions are absolutely finished.”
Denmark scrapped higher rate tax relief in 1999 and found retirement savings were materially unaffected by the change although people changed how they saved. But in 2009 a similar scheme to tax the pensions of higher earners was unveiled with contemporary estimates suggesting the cost of implementation at £900m.
Danny Cox, head of financial planning at Bristol-based Hargreaves Lansdown, said: “Pension tax relief should be left alone completely until 2018 when auto-enrolment is completely bedded in and at this stage the government should then have a wholesale review.”