Pension tax perks widen in­equal­i­ties, says think tank

The Daily Telegraph - Business - - Business - By Jessica Beard

THE cur­rent sys­tem of pen­sions tax re­lief widens in­equal­i­ties be­tween the sexes and be­tween old and young and needs a rad­i­cal over­haul, an in­flu­en­tial in­dus­try body has said.

The As­so­ci­a­tion of Bri­tish In­sur­ers called for a ma­jor shake-up in pen­sions tax re­lief af­ter it was found that lower earn­ers and young work­ers were miss­ing out on vi­tal tax re­lief even though more were sav­ing for a pension.

Any­one who pays into a work­place pension re­ceives tax re­lief, mean­ing con­tri­bu­tions are ef­fec­tively topped up by the Gov­ern­ment. How­ever, re­lief is granted at the saver’s “mar­ginal” or high­est rate, so those who earn more re­ceive more from the Trea­sury.

Re­search by the Pen­sions Pol­icy In­sti­tute think tank found that work­ers who earned less than £50,000 made up 83 per cent of all tax­pay­ers but re­ceived only a quar­ter of the pen­sions tax re­lief paid in re­la­tion to “de­fined con­tri­bu­tion” pen­sions, by far the most com­mon type in the pri­vate sec­tor.

The sys­tem favours higher earn­ers, it con­cluded, as the pro­por­tion of peo­ple who earn less than £30,000 but qual­ify for tax re­lief has in­creased from 52 per cent to 62 per cent thanks to au­to­matic en­rol­ment. How­ever, only 24 per cent of tax re­lief goes to them.

Men re­ceive the vast ma­jor­ity of pension savers’ tax perks: 71 per cent of all pen­sions tax re­lief is granted to them as they pay 69 per cent of the con­tri­bu­tions.

The tax sys­tem also ben­e­fits older peo­ple, with 42 per cent of those who con­trib­ute to a de­fined con­tri­bu­tion pension aged un­der 40 but they re­ceive only 27 per cent of the avail­able tax re­lief. Peo­ple in their 40s and 50s typ­i­cally re­ceive two and a half times as much tax re­lief.

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