The think-tank’s new paper covers its views on the government’s consultation around pensions tax relief. We cover the centre’s key viewpoints, while gathering opinion as to their suggestions.

In a market where savings has seriously gone out of fashion, the Centre for Policy Studies (CPS) has outlined a five-point plan to reform savings and improve its popularity.

Firstly, it notes the complexity of the pensions system, and “distrust” of providers, is putting off saving by basic rate taxpayers.

Its report, Five Proposals to Simplify Savings’, is a response to the government’s recent announcement of a review into pensions tax relief.

Firstly, it wants to abolish tax relief on pensions and replace it with a bonus on individual and employer retirement savings contributions – disconnected from tax-paying status. The report says that tax relief is “incompatible with pensions freedoms”.

Pots can be paid into just before 55 years-old, receive tax relief, and thereafter control draw downs to fall under the personal allowance – and not paying no income tax while accessing the 25% tax-free lump sum and recycling some of the drawings back into the pension pot, collecting more tax relief. “This makes no sense from a Treasury perspective”, says the report.

A single tax framework that operates for savings and pensions would “represent a huge simplification of the savings landscape”.

The report also calls for a “generous” cap on the total bonus any individual can receive in one year.

Bonuses would be disconnected from tax, with contributions made post-tax income, and structured to encourage the most reluctant savers – namely, those with less to save and who have traditionally benefited the least.

A ‘Workplace ISA’ could house employer contributions, locked in until 60 years-old. It should reside within the Lifetime ISA so all savings sit within one vehicle. Employers would no longer have to be concerned with gross pension deductions, instead making contributions net of tax with the Treasury contributing bonuses in parallel.

“The current system of tax relief is incomprehensible to the general public,” said Michael Johnson.

“Tax relief costs the government billions each year but 68% of that flows to higher and additional rate taxpayers who do not need such a large incentive to save.”

Kevin Reed is one of the UK’s most senior accounting and finance journalists. He is a former editor of Accountancy Age and Financial Director, and writes regularly on corporate and professional services governance.

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