L&G takes on Aviva over pensions benefits

L&G has come out against recent Aviva proposals for a standardised 30% rate of tax relief, saying such a scheme is "an attack on pensions savings".

Aviva says a person with a starting salary of 20,000 at aged 22 would accrue a £378,054 pensions pot by retirement at 65 under its proposed harmonised 30% tax relief.

Under the current two tier tax system they would only accrue £330,797.

But L&G says a uniform 30% will hit 40% taxpayers meaning they save less in pension plans.

Legal & General pensions strategy director, Adrian Boulding, says: "Beware the siren cries of those advocating a new uniform rate of tax relief for all savers.

"Behind their banner of 'fairness' lies an attack on pension savings, which will reduce the total amount our nation sets aside for its future retirement."

But Aviva disagrees, saying the change would be neutral for many of the 15% of people paying higher-rate tax at retirement, as the loss of tax relief in later life - from 40% to 30% - would be compensated by enhanced tax relief earlier in life - from 20% to 30%.

A harmonised system would benefit and encourage those 85% of people who are basic-rate taxpayers, potentially adding more than 14% to the value of their retirement fund, it says.

But Boulton argues workers believe they cannot afford pensions because other demands on their income are seen as a higher priority, not because charges are set too high.

He adds: "If the product is price-inelastic for ordinary workers this will not generate further pension saving."