DEBATE: Is cutting pension relief for older people a good way to address inter-generational inequality?

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Pension tax relief may need to be reformed (Source: Getty)

Is cutting pension relief for older people a good way to address inter-generational inequality?

Adam Corlett, economic analyst at the Resolution Foundation, says YES.

The chancellor should consider changes to pension tax relief in the Budget. The financial outlook for younger adults and families is poor, yet we continue with hugely expensive tax reliefs for high earners. Higher rate tax relief – at 40 and 45 per cent – is great for high earners, who are very likely to pay only basic rate tax in retirement.

Subsidising the savings of richer (and generally older) workers should hardly be a priority. If inter-generational inequality is your focus, changing pension relief is not an obvious place to start, but general fairness and necessity make it a good idea nonetheless.

The tax forecast is expected to be revised down in the Budget while the government is under pressure to find money for various policies, not least the need to soften the blow of welfare cuts. A good place to look would be the £9bn cost of higher rate relief, the tax-free lump sum and the £15bn cost of National Insurance relief on pensions.

These are huge sums and could be better spent to ease the squeeze facing low to middle income working families.

Read more: Philip Hammond mulls tax cuts for the young and writing off student loans

Richard Parkin, head of pensions policy at Fidelity International, says NO.

Many would recognise the current system of pensions tax relief as being skewed towards higher rate taxpayers.

But the fact that most of these are older should not be a reason to shift incentives to the young. In fact, thanks to automatic enrolment, the young will be reasonably well catered for. If there is a pension problem for the young, it’s that the current automatic enrolment rules exclude the low paid and those under 22. That’s what needs fixing.

The people we need to worry about are those in their 40s and 50s in the squeezed middle. This is the generation who got little or no defined benefit pension and for whom automatic enrolment comes late if it comes at all.

Pension tax relief may need to be reformed but this should be focused on equalising incentives, not skewing them to a different constituency in pursuit of political favour.

The young don’t want pensions tax relief, they want jobs and housing.

This proposal has the potential to deny support to those who need it in an attempt to subsidise those who don’t.

Read more: An intergenerational storm is brewing – politicians beware