The Association of British Insurers (ABI) has called for an overhaul of the UK pensions tax relief system following the publication of research which suggested that basic rate taxpayers are missing out on vital tax relief.
The ABI's research showed that the lower paid and the young are missing out on pensions tax relief despite more saving for retirement. A Defined Contribution (DC) pension scheme provides retirement income that is based on the amount paid in and the investment growth of the money.
Individuals receive tax relief from the government when contributions to a DC pension scheme are made. The research found that, in 2018, DC contributions represented 17.5% of the total amount spent on tax relief. This was despite an increase in the number of people contributing to workplace pensions, which rose from 55% in 2012 to 87% in 2018.
The ABI revealed that basic rate taxpayers make up 83.4% of all taxpayers, but they only receive 26% of the pensions tax relief related to DC pension contributions.
It also highlighted that more young people are paying into their pension, but the tax system benefits older people.
Commenting on the issue, Yvonne Braun, Director of Long-term Savings and Protection at the ABI, said: 'Pensions tax relief plays a vital role in encouraging people to save, but also supporting the adequacy of that saving. However, the distribution of pensions tax relief under the current system exacerbates existing inequalities, particularly between men and women.'