The company said in a statement: “We believe it’s a once in a generation opportunity to do away with pension tax relief in favour of a simpler system of Government funded matching contributions.

“The first of the eight questions in the consultation document asks to what extent the complexity of the current system undermines the incentive for individuals to save into a pension. The current system of pension tax relief is complicated and the majority of people do not understand how it works (57% according to a YouGov/Old Mutual Wealth research).

“It is set to become even more complicated with the new restriction on pension tax relief available to those with income over £150,000 coming into effect from the start of the next tax year.”

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The consultation asks if a simpler system could result in greater engagement with pension savings.

Old Mutual backed an approach of repositioning tax relief through the Government matching contributions into an individual’s pension as proposed by TISA’s The Savings and Investments Policy project (‘TSIP’) in March.

It said: “In our view, matching contributions based on the well-recognised concept of buy two get one free would be simpler, easier for people to understand and therefore more likely to encourage people to save more for their later life.

“The consultation should therefore include consideration of a new format of matching contributions whereby everyone, regardless of the level of income tax they pay, receives a £1 Government contribution for every £2 that they or their employer contribute, subject to the annual allowance. This would be significantly simpler and easy for people to understand and the behavioural impact of such changes on saving levels should be tested as part of the consultation.”

Steven Levin, managing director of distribution at Old Mutual Wealth, said:

“The huge sum of money we spend on pension tax relief is probably not working hard enough to get people to save because they don't understand how it works.

“It feels like now is the time to capitalise on the heightened awareness of pensions created by the new pension freedoms so the Chancellor is sensible to launch this consultation now.

“A consistent incentive for everyone, based on a simple concept of buy two get one free, could significantly change the way people engage with pensions and increase savings levels.”