Think tank proposes abolition of pensions tax relief

Crucially, the paper says, the bonuses would be "disconnected from tax-paying status", helping to reform a system in which savings rates are falling and the top 1% of earners are receiving double the pensions tax relief of half the working population.

Other proposals outlined include a 'generous' cap on the total bonus any individual would be able to receive in one year, as well as a reform of auto-enrolment to scrap the minimum earnings threshold.

The think tank would also like to see the introduction of a Workplace ISA to house employers’ contributions and the replacement of national insurance contribution rebates with bonuses on employer’s contributions, paid directly into the employee’s personal accounts.

The Centre for Policy Studies believes these reforms would "particularly benefit low-income earners who save passively" and would would also boost gender equality and tackle the “net pay” problem.

Robert Colvile, director of the Centre for Policy Studies, said: “The pensions savings landscape is complex and many people are put off from adequately preparing for their retirement.

"The proposals put forward in this paper would incentivise mass savings and save the Treasury an estimated £10 billion a year.

"It is vital that reforms are made so that people can access financial products which suit their needs today, and in the future.”

Michael Johnson, author of ‘Five Proposals to Simply Savings’, commented: “The current system of tax relief is incomprehensible to the general public.

"Tax relief costs the Government billions each year but 68% of that flows to higher and additional rate taxpayers who do not need such a large incentive to save.

"The Government should focus its reforms on proposals which do the most towards creating a broader savings base - such as replacing tax relief with bonuses on pensions contributions.”