Report flags inequality in pensions tax relief

A change to the system of tax relief on pensions could reduce gender inequalities, offering a higher benefit to basic rate taxpayers through a flat rate of tax relief, according to a new report.

The report from the Pensions Policy Institute says a flat rate of tax relief on pension contributions would increase the proportion of defined contribution pension tax relief associated with basic rate taxpayers from 26% to 42%.

While it would come at a cost to higher and additional rate taxpayers, the report says a tax advantage would remain which would continue to make pension saving attractive.

The report shows that 71% of tax relief on DC pension contributions goes to men, who make 69% of the contributions. In addition, 68% of the total income earned by individuals claiming tax relief goes to men while 63% of those who benefit from the tax relief are men.

It says: “The pension tax relief system is a reflection of the current workplace situation, whereby there are more men in employment at higher income levels, hence benefiting by a greater amount of pension tax relief.”

This is due in part to women taking career breaks or reducing their hours after having children or taking on other caring responsibilities and because women tend to be concentrated in lower paying sectors.

The report says that since the implementation of automatic enrolment the proportion of pension tax relief going to those earning less than £30,000 has only increased from 23% to 24% despite the proportion of claimants increasing from 52% to 63%. This is in large part because it has mainly benefited younger people.

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