ABI lobbies Government to raise tax relief on company pensions

The Government should double tax relief on company pension contributions if it wants to address the £27bn annual shortfall in the amount being set aside for old age, the insurance industry will say today.

The Association of British Insurers suggests the Government could increase the tax relief from 20 per cent to as much as 40 per cent, boosting contributions by £2.8bn a year.

It says the relief could be tapered, so that most tax breaks were directed at small employers, which tend to make fewer contributions to staff pension schemes than large companies.

The ABI's proposals come after the failure of stakeholder pensions to increase people's levels of saving. Small companies were obliged to start offering the scheme last year, and the Government hoped this would encourage them to start contributing to their employees' pensions. In fact most small companies opened the stakeholder schemes but did not put in any money for staff.

Mary Francis, director general of the ABI, said the organisation had not ruled out the option that companies should be forced to contribute to pensions but a voluntary system was suggested at this stage "to encourage more people to save under an incentive scheme which would be easy to operate".

The Government is likely to view the proposal with suspicion, since it does not want pensions to cost the Exchequer more. Andrew Smith, the new Secretary of State for Work and Pensions, said last week that people should be encouraged to work longer to build up larger pension pots.