Tax Relief and Partnership Pensions

‘No‐one ever got rich by passing up golden opportunities and that's exactly what a personal pension offers you. Why?Because one of the beauties of saving for your retirement is that the government actually gives you money — and lots of it — to encourage you … you get back every penny of the income tax you pay on the money you invest.’ Small print: ‘the value of the tax benefit depends on how much tax you pay’. Virgin advertisement, The Guardian, 17 September 1997. Abstract Government support of private (occupational and personal) pensions through tax relief is an important element in the UK's retirement income system. However, the current tax relief system is regressive, lacks transparency and is difficult to control. This paper argues that it should be replaced by a cost‐neutral matching‐grant or tax‐credit scheme. Such a scheme would embody the ‘partnership’ idea implicit in much government policy in this area, but would be much more progressive, more open and more accountable than existing arrangements. The argument is illustrated through a comparison of the cost and distributional impact of the current system with those of an alternative tax‐credit scheme. JEL classification : H55.