However, the idea of cutting the money spent on tax relief for older workers and using this to fund tax cuts for younger people would be a nightmare to implement both practically and politically.
Tom Selby, senior analyst at AJ Bell, comments:
“On a practical level, 60% of pension tax relief is received on employer contributions, rather than individual contributions. So while it would be relatively simple to restrict higher rate tax payers from reclaiming additional relief via their tax return at a certain age, changes would need to be introduced to catch employer pension contributions, including salary sacrifice arrangements, so that they can’t be used to circumvent the new rules.
“Final salary pension schemes would also have to be looked at to ensure they are treated on an equal basis to money purchase pensions. While none of this is impossible, it is not simple, would take years to implement and is unlikely to deliver the immediate budget injection the Chancellor is seeking to help younger people.
“The Treasury would also need to balance simplicity against fairness. Having different levels of tax relief based on age would risk layering extra complexity on an already complex system. There would also presumably have to be some form of means-testing involved to ensure super-rich younger workers aren’t given a bigger tax relief boost than older workers in less well paid jobs.
“Politically the Chancellor would be treading on very thin ice. Older voters still hold the key to electoral success and raiding their pensions would risk alienating the very people who delivered Theresa May to Downing Street, albeit as the head of a minority Government.
“This speculation further strengthens the argument for moving pension tax relief policy out of politics. Rather than altering the framework at a whim in order to make short-term political gain, an independent commission should be established to review the system with a long-term time horizon and consider what, if any, changes need to be made.”