Cutting tax relief could lead to a pensions exodus in favour of Isas, research by True Potential has found.
A third of savers polled by online investment site True Potential Investor said they would switch their contributions to an Isa if the chancellor opted for a flat rate of tax relief in next month’s Budget.
Just one in five people would continue to save into a pension at the same level if the higher rate tax relief was cut while others said they would choose alternative investments such as property.
David Harrison, managing partner of True Potential, said: “Pensions are deeply unpopular, poorly understood and deny people access to their own money for decades.
“The only reason for choosing a pension is tax relief, which if cut, would dramatically reduce the appeal.
“Isas are far more simple and popular but to be a viable alternative to a pension, the chancellor would need to increase the annual allowance to at least £25,000 and provide an incentivising top-up on individuals’ contributions.
“A flat rate of tax relief without enhancing Isas is a watered down compromise that could actually make the savings gap worse and save far less for the Treasury than it wanted.”
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Since George Osborne announced the review into the tax incentivisation of pension saving, there has been speculation about whether he would introduce a flat rate of tax relief or ditch the system all together.
When he launched the review in the Summer Budget Mr Osborne said he is open to “radical change” and said pensions “could be taxed like Isas”.
An announcement one way or the other will be made in next month’s Budget.
True Potential Investor’s research involved more than 2,000 savers across the UK.
It found that twice as many over 55s would favour an Isa over a pension after a tax relief cut.
Of those aged 18 to 24-years-old who are starting to save, 43 per cent would put more into an Isa compared to 32 per cent who would stick with a pension.