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Minister calls for flat rate 30% pension tax relief

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The pensions minister has called for an overhaul of tax relief on pension contributions that would see a flat 30 per cent rate introduced and the lifetime allowance axed.

In an interview with the Daily Mail, Steve Webb said the current system gave greater incentives to save to higher rate tax payers.

But he added that the lifetime allowance, which introduces a penal tax rate for savers that amass a pot worth more than £1.25m, was an “illiberal” concept.

Webb told the paper: “Most people get 20 per cent relief, some people get it at 40 per cent. But the people who get it at 40 per cent get shed loads. If you gave everybody 30 per cent then that spreads it much more evenly. Clearly that is not government policy, it is not even Lib Dem policy yet – but I’m working on that.”

Last year, the think-tank Pension Policy Institute said replacing the current system with a 30 per cent flat rate would be revenue neutral for the government but “spread the advantages of tax relief more evenly”.

Webb (pictured) added: “Personally I can’t see why we don’t have a much simpler system. And in that world, you probably don’t need a lifetime allowance.

“The lifetime allowance is a funny thing because it doesn’t just say if you pay in more than this you don’t get tax relief, you actually have a penal rate of tax. So to actually say that we will punish you if you go beyond our limits seems illiberal to me. If people want to put more money in to a pension we shouldn’t stop them.”

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