The PPI argues that the current incentive for pension saving isn't working. It primarily benefits those on high incomes, and higher tax rates, who will probably save anyway, while doing much less for those with more modest means.
Even after auto-enrolment, people on basic-rate tax contribute 50 per cent of their savings, but get just 30 per cent of the tax benefits. So the institute suggests tweaking the rules to offer a single 30 per cent rate of tax relief on pension saving to all.
There is a lot of sense in this suggestion - which could mean the system is fairer and better targeted. But the principle of the current system is to avoid double taxation. You pay money into a pension with full tax relief on your income, but have to pay tax when you draw money out as your retirement income. That seems fair, too.
But today's pensions system is imprecise, with non-taxpayers receiving basic-rate relief, higher-rate taxpayers usually becoming basic-rate taxpayers in retirement and everyone receiving 25 per cent of their fund tax-free. People only benefit fully from pensions in particular circumstances and it is hard to tell if you will be in this group when you start a pension.
Plus, the constant tweaking of the pensions rules or rumour of tweaking puts off investors. Recently we have reported that many pension savers expecting moderate retirement incomes will be caught by the lifetime limit for pensions dropping to £1.25m in the 2014-15 tax year.
Every time there is a rumour of possible tax relief restrictions, pensions providers report that investors rush to invest ahead of the rule change. And many providers are guilty of using impending rule changes as a marketing tool to boost pension sales.
Instead, I think that rumours of rule changes should be a time to reflect on how much you contribute to pensions and whether you could use other tax-efficient wrappers to diversify your strategy. Are you - and your spouse or partner - using your full individual savings account (Isa) allowance? Have you considered investing in higher-risk venture capital trusts and Enterprise Investment Schemes where healthy tax breaks are on offer?
