There is speculation that the next UK Government might overhaul the way that pension savings are taxed.
This paper provides a critical analysis of some of the reforms that have been proposed, focusing particularly on the idea of a flat rate of upfront tax relief on pension contributions. There are serious practical obstacles that would have to be overcome before such a reform could be introduced – for example, 40% taxpayers would have to pay a tax charge whenever their employer contributed to a pension for them.
The paper catalogues what political parties have said about pensions tax relief. We also discuss why commonly quoted statistics about the cost and distribution of pensions tax relief do not tell the whole story.