The chief executive of Legal & General Nigel Wilson says a flat rate of pensions tax relief of 20% should be introduced.

Wilson called for "radical thinking" and said that a broadening out of auto-enrolment would be a better alternative.

He said: "Almost GBP 50bn of tax was "forwent" paying pensions tax relief in 2013-14, of which GBP 30bn goes to higher and additional tax rate payers – this is staggeringly regressive and expensive."

"That's GBP 30bn that could be used to pay down the deficit or for more socially useful ways such as broadening out the auto-enrolment to include provision for customers to be protected if they become ill, die or made redundant."

"Furthermore, it could be used to increase the National Insurance threshold."

All three would be fairer, more productive and much cheaper than the existing regressive system, he added.

L&G is recommending five considerations for Treasury in terms of the pensions system.

First, it should be one nation, one rate – irrespective of where in the UK you live, or what retirement savings vehicle you use, the amount of monetary contribution from the Chancellor should be the same.

Second, cross party support and a trusted system is essential – if someone is saving for long-term, they want a long-term product, which is simple and hassle free.

Third, the government needs to move away from talking about tax relief and talk about a bonus for retirement saving and a flat rate of pensions tax relief of 20%.

Fourth, the rate needs to be affordable so it is sustainable.

Lastly, any new initiatives introduced by the government should build on the momentum behind auto-enrolment.

"We are calling for a flat rate of pensions tax relief of 20%, re-branded as 'save X, get Y as a bonus from the government for free," Wilson said.

"We think this is far more financially sustainable for the Exchequer, easy for customers to understand, and works and supports retirement savings for this and subsequent generations."

He added that auto-enrolment is the "gold standard" in modern pension saving and has reversed its decline.

He said: "Every year savers are supporting a better retirement for themselves, their families and society, which is why we've put a self-imposed charge cap of 0.5% on our standard offering – it creates the right inventive."

"We'd like everybody to follow suit or for the government to make it mandatory."

First published 08.10.2015

Lindsay.sharman@wilmingtonplc.com