The Chancellor is considering plans to end more generous rebates for higher rate taxpayers on pension contributions and replace them with a flat rate of relief which could be as low as 20 per cent.
An analysis by Hymans Robertson, one of Britain's biggest pension consultancies, found that two thirds of higher rate taxpayers - equivalent to 3.2 million people - are currently not saving enough for their retirement.
It said that a decision to scrap higher rate tax relief on pension contributions would "penalise" middle class savers even further and discourage them from putting aside sufficient money for their retirement.
Conservative MPs have warned Mr Osborne that he will face a "riot" if he pushes ahead with the plans with a significant backlash from Tory voters.
Chris Noon, a partner at Hymans Robertson, said: "George Osborne would be short sighted if he pushed ahead with this. It would penalise savers, the very people the Conservatives are supposed to represent.
"Higher rate taxpayers will not save as much in their pensions because it is not as efficient for them. They will get to retirement and not have enough to live on. These people [higher rate taxpayers] are already paying a high proportion of their income in tax - let's not penalise them further."
At present basic-rate taxpayers receive a £20 top-up from the Government for every £80 they pay into a pension.
Higher rate taxpayers, classed as those earning more than £42,385, receive £40 for every £60, while top-rate taxpayers receive £45 for every £55.
Under plans being considered by Mr Osborne for a flat rate relief of 20 per cent for all, savers will receive £25 for every £75 they contribute. The move could save the Treasury an estimated £6 billion.
Tory MPs, however, are increasingly concerned that the move could hit their constituents and core supporters.
Sir Alan Duncan, a former minister, said: "What is really important for the future is that we have stability, no retrospective adjustments and a system that encourages people to put a lot of money away for the future.
"You can't plan for a pension if you are halfway through doing it and someone pulls the rug from beneath you."
Hymans Robertson analysed its database of more than half a million savers and estimated how much money they will have in their retirement.
Under official measures, the majority of higher rate taxpayers are considered to have an "inadequate" level of savings if their income in their retirement is less than half the salary they enjoyed when they were working.
It found that 69 per cent of those paying the 40p rate of tax are unlikely to have enough income when they retire. Basic rate taxpayers are also struggling to save enough for their retirement, with 62 per cent failing to put enough aside.
By contrast 39 per cent of additional rate taxpayers - those paying the highest level of tax - will have "inadequate" levels of savings while the figure for those paying no income tax is less than 10 per cent.
It warned that hitting higher rate taxpayers by withdrawing relief will increase pressure on the state when they retire.
It said: "As shortfalls in pension income put pressure on future Governments to provide higher state benefits for the elderly, any policy changes which reduce pension incomes are unlikely to reduce overall Government spending over the long-term."
It is recommending that Mr Osborne should limit the highest level of tax relief on pension contributions to 33 per cent. Basic rate taxpayers would receive tax relief at their marginal rate, 20 per cent.
Original Article
Source: telegraph.co.uk/
Author: Steven Swinford
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