The UK pensions minister, Steve Webb, has said that the current system of pension tax breaks are “unfair” and “heavily skewed” in favour of the wealthy.
The Liberal Democrat MP says that current measures should be replaced with a flat rate of tax relief on all pension savings set between 20% and 30%.
The current system provides relief to savers at their highest marginal rate, which means that taxpayers on the higher rates pay only 60p to put each £1 into a pension.
Steve Webb told Money Marketing:
“If you are looking for a way to help the average pension saver in a world where you want to reduce the budget deficit in a way that is progressive, pensions tax relief is an obvious place to look.
“The goal would be to have a structure in place that was stable. People keep saying to me ‘don’t keep fiddling’ but as long as we fail to address the unfairness of the current structure people will go on fiddling.”
The Treasury spends £54 billion a year on the higher rate of relief and both Labour and the Lib Dems have hunted that they would seek reform if successful in the 2015 general election.
A spokesman for the Treasury said:
“Pensions tax relief provides strong incentives for everyone to save; however this needs to be balanced against the need to protect the public finances from the growing cost of pensions tax relief.
“Although the Government keeps all taxes under review, there are no plans to make any changes to pensions tax relief.”