Government mulls tax relief cap and public sector Nest compulsion

Michael Johnson, research fellow at the Centre for Policy Studies, told the 2010 FT UK Leadership of Pensions Summit, the move would take place “pretty soon”, in a bid to save around £7bn per year.

The move would be matched by a cap of 20% on the tax paid on pensions in payment.

The reform was first mooted in the CPS’ June report, Simplification is the key: stimulating and unlocking long-term saving , but appears to have gained traction with chancellor George Osborne, who knows Johnson from his time as a policy adviser to prime minister David Cameron.

And in its closing address, Johnson told the conference: ““The juiciest, largest, lowest hanging pieces of fruit out there for a government looking to save money, is up front tax relief.

“The specific proposal to George [Osborne] that I made was for the 20% up front cap, and 20% at retirement. This would save £6-7bn per year.”

“I would say there is a 50% plus probability that the 20% upfront cap is going to arrive pretty soon.”

He also called for saving into the National Employees Savings Trust (Nest) to be made compulsory for public sector workers, as part of a hybrid scheme, with some defined benefit element.

He said the measure would form part of a new report on pension provision in the public sector, which he will publish before the end of the year.

“I feel we will eventually see some form of hybrid [in public sector pensions], and Nest fulfills the defined contribution element in that hybrid,” he added.

I’ve recently come to favour compulsion. If in the 30-40 years time we come to realise there isn’t a problem [with retirement savings], we can end compulsion, but if we get there and it is that bad, it will be too late to do anything about it.”