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Over two thirds of pension tax relief currently goes to higher rate or additional rate tax payers, but the lifetime allowance and annual allowance restrictions are making a significant reduction in their overall share. Tax relief was originally introduced to provide an incentive for people to save towards their retirement.
The consultation launched by the government today, asks for suggestions on how the current system can be reformed so that more people can save for their retirement and more importantly, be incentivised to save.
Pensions are often compared to ISAs and the government appears to be consulting on bringing them closer by proposing taxation on pension contributions upfront, with a top up from the government, allowing growth free of tax and then on the way out the benefits would be tax free.
The consultation is open until 30 September 2015, but in doing so is the government not only seeking a way to simplify pensions, but consulting on the possibility of end to tax relief?
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