The Institute for Fiscal Studies (IFS) has Chancellor of the Exchequer Philip Hammond should address the "many inequitable and inefficient parts" of the British tax system which needed reform and could raise more money from the wealthy.
The IFS said an example of this was the treatment of pension pots on death and suggested levying both income tax and inheritance tax on bequeathed funds.
Another example was council tax rates, and the IFS suggested increasing these on the top four bands of property, which would raise £8.5bn in England.
Meanwhile the IFS also recommended charging National Insurance contributions (NICs) on the earnings of those over state pension age, which could raise £1bn a year, and it said there was also a case for levying a low rate of NICs on private pensions in payment to reflect the fact contributions were never paid on employer contributions.
Requiring national insurance contributions on all pension income would raise £650m for every one per cent of national insurance levied, the IFS found.
Tom Waters, a research economist at the IFS, said: "If the increased revenue is partly to be spent on the NHS perhaps the government might like to target those at older ages for increased revenues since NHS spending disproportionately benefits them.
"One policy often suggested for increasing NHS spending is to up the rate of NICs but actually older people wouldn't be affected at all by this and that's because they benefit from two key NICs exemptions."
Addressing the treatment of pension pots on death, Mr Waters said: "We are in the bizarre situation where people are incentivised to finance their retirement through anything other than their pension so they can pass on their pension pot without any inheritance tax when they die."
The Prime Minister Theresa May recently promised the government would be "ending austerity" but the IFS warned this would mean Mr Hammond would have to find an £19bn of additional spending by 2022/23.
The IFS warned this would not be compatible with the Chancellor's ambitions of eliminating the deficit by the mid-2020s without substantial tax rises or much higher growth.
Paul Johnson, director of the IFS, said : "The decision over the spending review envelope will probably be the biggest non-Brexit related decision this Chancellor will make.
"He has a big choice. He could end austerity, as the prime minister has suggested. But even on a limited definition of what that might mean would imply spending £19bn a year more than currently planned by the end of the parliament.
"He could reconcile these demands by raising taxes, and in principle there are plenty of good options, but the overall tax burden is already high by UK historical standards and he could be constrained by the lack of a parliamentary majority."
Despite this the IFS found borrowing had now returned to pre-crisis levels and the deficit was at 1.9 per cent of national income in 2017/18, putting it at its smallest since 2001/02.
Tom Selby, senior analyst at AJ Bell, said the decision to allow undrawn pensions to be passed on tax-free when the holder dies before 75 was a pre-election gambit by previous Chancellor George Osborne.
He said: "It would be no surprise if Phillip Hammond, who has not been shy of departing from his predecessor’s policies, is now revisiting this decision as he looks at ways to raise extra cash.
"This would potentially present a real problem for savers who have made decisions based on the existing tax treatment of defined contribution pensions on death.
"Many defined benefit members will have chosen to give up their guaranteed benefits because they want to prioritise passing on unused funds to loved ones. If the Government pulled the rug from under the feet of savers’ by hitting their pots with extra tax and inheritance charges they would understandably be very angry.
"While the temptation to levy national insurance contributions on the earnings and retirement incomes of older people will be strong for the Treasury, there will undoubtedly be many within government concerned at the electoral impact of such a move."
In July this year, MPs argued that pensions tax relief was not an effective way of incentivising people to save into pensions and called for a flat rate of relief.
However in its response to MPs, the government refused to move to a single rate of pension tax relief due to a lack of agreement that more reform is needed.
Billy Burrows, financial adviser at Better Retirement, said: "On the one hand the government wants people to take responsibility to save for a pension on the other hand they are talking about cutting back on tax relief for high earners.
"While it might seem appealing to cut the tax incentives for fat cats, it sends out the wrong signals and will impact many people who do not think of themselves as wealthy."
Similarly, Carl Wilkinson, financial planner at Informed Choice, said: "Any legislation that restricts tax breaks on pension savings is going to dissuade some people from using pensions as a long term savings vehicle.
"Higher earners are already restricted in their pension savings capacity by the tapered annual allowance and lifetime allowance, further restrictions may then cause people to look for alternatives to reduce tax, such as enterprise investment schemes or venture capital trusts, which come with a higher level of risk and won’t be suitable for everyone."
rosie.quigley@ft.com
