‘Give savers a bonus’ to prevent pension poverty

to say how much they are getting in tax relief.” Michael Johnson, a research fellow at the Centre for Policy Studies, said: “The Government should focus its reforms on proposals which do the most towards creating a broader savings base, such as replacing tax relief with bonuses on pensions contributions.”

Complicated

The report argued that the tax relief system, where earners are spared having to pay income tax on cash saved in their pension funds, was too complicated to act as an incentive.

Mr Johnson’s report also warned that the current system had become hugely expensive for the country.

“In 2016-17, the combined cost of tax relief and National Insurance rebates on pensions contributions was £47billion – of which 40 per cent went to the top 10 per cent of earners. The top one per cent received more than double the amount paid to the bottom half of the population,” the report said.

Under the report’s recommendations, tax relief on pension savings would be scrapped so income tax would have to be paid on it.

But the extra revenue could then be used to reward earners with an annual bonus based on a percentage of their workplace pension funds.

Robert Colvile, director of the Centre for Policy Studies, said: “Many people are put off from adequately preparing for their retirement.

“The proposals put forward in this paper would incentivise mass savings and save the Treasury an estimated £10billion a year.”