The Association of British Insurers (ABI) is asking the chancellor to introduce a Savers’ Bonus that would treat all taxpayers equally.
Currently, people on higher incomes benefit from either 40 per cent or 45 per cent tax relief, while others receive just 20 per cent. The ABI has said that a flat rate would provide a “massive boost” for ordinary workers and argues that it would encourage low and middle-income earners to save.
However, the Pensions and Lifetime Savings Association – previously the National Association of Pension Funds – said that any flat rate was likely to be set at 25 per cent or lower. It claims this would produce little benefit to basic-rate taxpayers, but would “greatly reduce” the attractiveness of pension saving for 4.6 million higher rate taxpayers.
The Pensions Policy Institute adds that an advantage of a flat-rate is that it could save the Treasury up to £6 billion a year if it were set at 25 per cent.
Chancellor George Osborne is expected to announce changes in his budget on 16 March, following a seven-month inquiry by the Treasury.