Private pensions are a publicly subsidised gift to the wealthy | Phillip Inman
Phillip Inman argues that pension tax relief disproportionately benefits wealthier savers and should be equalised to reduce inequality between income groups and generations. He suggests that John Healey should consider reforming the system ahead of the autumn budget, particularly as public spending pressures rise.
The article says pension income-tax relief rose from £48bn in 2022-23 to £60bn in 2024-25, with about £40bn going to higher-rate taxpayers, who receive 40% relief compared with 20% for standard-rate taxpayers. It also contrasts the stronger defined-benefit pensions often secured by older, white-collar workers with the less certain defined-contribution schemes offered to younger employees, while noting that longer life expectancy is associated with greater affluence.
- Pension tax relief chiefly benefits higher-rate taxpayers, the article argues.
- The annual cost of pension relief reached £60bn.
- The piece links pension policy to generational inequality.
Both sides, in good faith
The strongest fair case each way — we don't pick a winner.
The case for
Equalising pension tax relief would make public support for retirement saving less regressive, since higher-rate taxpayers currently receive a larger subsidy for putting aside the same amount. Supporters argue that a flat-rate incentive could direct scarce fiscal resources more fairly, help lower and middle earners build security, and reduce the role of pensions in widening wealth gaps between generations. The underlying value is that tax relief should serve broad retirement resilience rather than confer the greatest benefits on those already best placed to save.
The case against
Retaining relief at a saver’s marginal tax rate is defensible because pension contributions are generally taxed when withdrawn, so the system aims to defer tax rather than simply grant a subsidy. Critics of equalisation argue that cutting incentives for higher-rate taxpayers could discourage long-term saving, increase future reliance on the state, and unfairly alter expectations for people who have planned their retirement around established rules. The underlying value is consistency: a tax system should encourage responsible provision across income levels without penalising those who save substantial portions of their earnings.