A simple solution to pension tax relief

The pension tax relief system is needlessly expensive, says Merryn Somerset Webb. There is, however, a simple solution - cap contributions.

Ask anyone who does anything related to pensions these days about pensions tax relief and they will all tell you the same thing: its days are numbered. Why? Because it costs a fortune (think £35bn a year) and much of that fortune has historically been taken up by people who don't need incentives to save they're likely to be doing it anyway.

Note that 70% of pension tax relief goes to those in the higher rate tax brackets. That's why the minister of state for pensions, Steve Webb, wants to bring in a flat rate of pension tax relief of 30% to replace the current system whereby you get relief at your highest marginal rate of income tax.

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Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.