In the run up to the election, the Conservatives have unveiled plans to increase tax relief on pension contributions as part of their promise to tackle the ˜pension time bomb". Under the proposals, basic rate taxpayers would have their tax relief raised by 10p in the pound, up to a maximum of 32p, adding £10 to every £100 saved towards a personal pension. It is expected that around 10 million people would benefit from the rise, which is estimated to cost around £1.7 billion of the £4 billion the Conservatives have pledged in tax cuts. If they were voted in as government, the scheme would come into effect from April 2006.
Our view
Throwing more money at a problem in the form of additional tax incentives will not encourage the public to save. Education and felxibility is the only way forward. We have flexibility in the form of new Pensions Simplification changes taking effect next year but little finance education.