In a new report, the Treasury Committee has called for the government to reform tax relief on pensions.
The Committee reviewed the current state of UK household finances, and suggested that many households are presently ‘over-indebted’, and are without a ‘rainy day savings buffer’.
According to the Treasury Committee, tax relief is ‘not an effective or well-targeted way of incentivising saving into pensions’. It has urged the government to give ‘serious consideration’ to replacing the lifetime allowance with a lower annual allowance, alongside introducing a flat rate of relief, and promoting tax relief as a bonus or additional contribution.
Within the report, the Committee also stated that a number of changes are ‘presenting new challenges to households saving for retirement’, including the ongoing transition from defined benefit to defined contribution pensions.
Commenting on the report, Nicky Morgan, Chair of the Treasury Committee, said: ‘Many households are facing challenges that are putting pressure on the health and sustainability of their finances. Over-indebtedness, lack of rainy day savings and insufficient pension savings are some of the weaknesses in the household balance sheet identified in this inquiry.
‘The Committee’s report makes a series of recommendations for the government to consider that would help households ensure that their finances are as resilient as possible.’