Reeves's 50bn problem solved: stop giving it away in pension tax relief | Phillip Inman

"At the moment the chancellor gives away more than 50bn in tax relief for pension saving, most of which goes to wealthier boomers and better-paid gen Xers who do not need the money and would save anyway if state support was more limited. A remodelling of pension subsidies cutting the 40p higher rate to a flat rate of 25p for all savers could claw back 10bn to 20bn in extra income tax and national insurance payments, depending on how the new regime is constructed."

"In a separate but related move, Reeves could reduce or scrap the tax-free allowance, a privilege that allows for a quarter of retirement savings to be taken as a tax-free lump sum. Boomers have been exercising their right to tax-free cash for decades at everyone else's expense. While some savers need the money to pay off debts or help with the cost of living, it has always been unclear why this indiscriminate benefit should be gifted to those who, by definition, have more money than most by virtue of having a pension."

"Fears that pension reform is imminent have already triggered a rush of older savers keen to exit with the biggest bag of tax-free cash they can muster. According to a freedom of information request by the wealth manager Evelyn Partners, figures from the Financial Conduct Authority show that individuals withdrew 18.1bn from their pension pots in the year to the end of March, up from 11.25bn in the previous year."

The chancellor currently provides more than 50bn in tax relief for pension saving, with most benefits going to wealthier baby boomers and higher-paid Gen Xers who would save without state support. Remodeling pension subsidies by cutting the 40p higher rate to a flat 25p could recover 10bn to 20bn in additional income tax and National Insurance, depending on design. Reducing or removing the tax-free allowance, which permits a quarter of retirement savings to be taken tax-free, would further curb an indiscriminate benefit. Older savers have accelerated withdrawals amid reform fears, increasing pressure on public finances and prompting consideration of significant tax reforms.

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