The government should use the upcoming Budget to make “targeted interventions” on issues such as auto-enrolment, rather than "tinkering or radical reform" to the pension tax relief system, Aegon has said.

The firm warned that the upcoming budget was not the time for a radical reform of pensions tax relief given the "many pension priorities and changes being advanced", suggesting that a move to a flat rate of tax relief would be “far from simple to implement”.

Aegon pensions director, Steven Cameron, also noted that this would be "particularly challenging" for defined benefit (DB) schemes and would only benefit the Exchequer if the cuts in incentives for higher rate taxpayers were greater in total than any increased incentive for basic rate taxpayers.

"There are no quick wins here for the Chancellor, change would be very complex and any savings for the Exchequer from less tax relief would take significant time to realise," he said.

“Currently, the government is pushing those running defined contribution (DC) pension schemes to make significant changes to where they are investing members’ funds to address climate change and to invest more in infrastructure and start-up companies to turbo-charge the economy.

"Reducing tax incentives for many pension savers risks sending out mixed messages."

Despite these concerns, Cameron said that there were some “targeted interventions which would be particularly welcome” from the government, including issues around the Money Purchase Annual Allowance (MPAA), net pay schemes, the normal minimum pension age (NMPA), and auto-enrolment reforms.

In particular, Cameron warned that many could be caught "unawares" by the "little-known" MPAA, which means anyone over 55 who has accessed their pension flexibly, perhaps to support them during lockdown, has a future annual limit of £4,000 on what they can pay in.

"We’d welcome this being increased to at least £10,000 to give individuals more freedom to get their retirement planning back on track," he said.

In addition to this, Cameron urged the government to deliver on its commitment to addressing the ‘net pay’ anomaly, arguing that this would be a "welcome ‘levelling up’ measure for the lowest earners.”

He also highlighted the budget as an opportunity for the Treasury to drop or amend "controversial proposals" around how to implement an increase in the NMPA, echoing recent concerns from the broader industry.

He explained: "Proposed transitional arrangements risk decades of complexity for pension schemes and their members.

“The Treasury has been seeking to ‘protect’ a small minority of individuals who are in schemes whose rules by sheer accident of history give an ‘unqualified right’ to take benefits at age 55.

"While well meaning, these protections would create horrendous complexity and multiple unintended consequences for little real benefit.

"The pensions industry is united in calling for a radical rethink to keep things simpler and fairer across the board, while helping pension savers understand their entitlements so they can plan for their future.”

Cameron also echoed industry calls for the government to take action on auto-enrolment reforms, noting that those earning less than £10,000 in total or those with multiple jobs all paying less than £10,000 currently miss out on being automatically enrolled.

"For them, changing the rules and thresholds here would offer a valuable step up in their pension savings," he said. "Women are more likely than men to fall into this trap so a change here would also help ‘level up’ and reduce the gender pensions gap.”

However, Cameron acknowledged that whilst auto-enrolment has successfully boosted the retirement savings of millions of employees, the self-employed are not included and are “falling further behind their employed counterparts” every year, suggesting that something “dramatic” needs to be done for self-employed pensions in light of this.

“With auto-enrolment reaching its 10th anniversary next year, finding solutions to encourage default retirement savings for the self-employed would be a huge step towards ‘levelling up’ pensions for this vital and growing part of the workforce,” he said.

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