Enforcement of a UK compulsory pension contributions system could potentially force the government to fork out up to £4bn a year in tax relief, according to calculations from consulting firm Aon.
The firm says introduction in the UK of compulsion at a rate of 9% of pay - assuming the current Australian model - would leave the government with a £4bn tax relief bill every year.
Aon argues under compulsion, cash which previously fell into wages or profits, and which are taxable, would instead go into pensions savings, thereby attracting tax relief.
Donald Duval, chief actuary at Aon Consulting says: “With compulsion being on the agenda of many politicos during the build up to the UK election, proponents of compulsion need to outline how they will fill the hole in Government finances.”
Duval says while compulsion will increase take up private pensions, thereby reducing the role of the Pensions Credit, the government would still feel a massive drop in revenue over the short term.
The DWP says compulsion is one of the issues which is under consideration by the Pension Commission, which is due to report back in the autumn.
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