Changes to the contribution levels of auto-enrolment could bring back the debate around tax relief, Curtis Banks has said.
Speaking at the self-invested personal pension (Sipp) provider’s roadshow in London today (28 February) pensions technical manager Jessica List said automatic enrolment could rekindle this debate because changes to minimum contribution rates will push up the tax bill for an already cash strapped Treasury.
The rate of minimum auto-enrolment contributions is due to rise to 5 per cent in April and 8 per cent in the year after.
Currently tax relief is tiered and linked to the marginal rate of income tax of the saver.
But Ms List said: "There is still discussion going on around the current tax relief system and how long it can last. The latest figures put it at £41bn and we are already talking about that cost being too high and unsustainable.
"There are changes coming through in 2018 and 2019 which could be the final push that prompts further changes."
Currently tax relief is given at point of saving and money is being taxed at point of taking out.
Pensions tax relief was due to be overhauled when the government recently considered the merits of replacing tiered rates with a flat rate of relief or to turn the system on its head altogether.
The government had considered to introduce an Isa-style system where money is tax free at point of withdrawal but no relief is given on the way in, which would afford the Treasury a temporary reprieve.
There was also discussion around scrapping higher or additional rate tax relief as about two-thirds of relief is thought to go to higher earners who least need it.
But plans were scrapped as the government grappled with the aftermath of the Brexit referendum in June 2016.
Ms List said a more drastic option to scrap relief altogether could re-enter the debate.
This was because being automatically enrolled could be considered the new incentive behind pension saving, she said.
She said: "We know the government is under huge pressure to reduce the pension tax advantages, such as pensions tax relief, while also encouraging saving.
"There has been discussion around scrapping tax relief altogether. The thought being that once people are auto-enrolled and once those minimum contributions have been raised that in itself is the incentive towards saving into retirement, so tax relief won’t be needed in the same way as it is now."
carmen.reichman@ft.com
