UK- The UK government has denied reports that it plans to abolish pension tax breaks for top-rate taxpayers, as speculation mounts as to what reforms will be suggested in the government’s forthcoming green paper.

Presently, those earning above £29,900 a year receive 40% tax relief on cash paid into their retirement fund. The government is believed to be considering cutting this to the standard 22% rated offered to most savers.

The purpose of tax relief changes would be to make pensions more equitable. Around half the moment spent on giving tax breaks for pensions goes to the top 10% of earners, and 25% to the top 2.5% of earners. It has been suggested that the money saved from cutting the tax rate could be used to provide a matching scheme, whereby the government would pay £1 for every £1 or £2 saved by those earning below £11,000.

“It is a bad idea to remove incentives at a time when the government should be encouraging people to save – regardless of how much they earn. The government is giving off the wrong signals,” says a spokesman for the National Association of Pension Funds.

Both the Treasury and the Inland Revenue have dismissed the reports as “pure speculation”. A spokeswoman at the Department of Work and Pensions also says “the DWP will not speculate ahead of the emission of the green paper.”

As part of the Green Paper on the future of UK pension provision, the government set up three coordinated reviews, led by Alan Pickering, the Inland Revenue and Ron Sandler, to examine different aspects of pension provision.

Ron Sandler suggested the idea of a matching scheme instead of tax relief in his commissioned report. Matching schemes are said to be more transparent and easier to understand.

The Green Paper was originally due to be published in Autumn 2002, but a spokeswoman at the Inland Revenue said this would now likely be put back to early 2003.