A government consultation, which closes today (30th September), is asking for views on how pension contributions should be taxed and what incentives should be offered to savers. One possible option the Treasury is considering is a move to an Isa-style system where contributions, from both employee and employer, would be subject to tax.

Aviva’s survey found:

• 2 in 3 companies believe an Isa system would lead to employees saving less into their pension
• 82% of employers said it is very important that employer pension contributions continue to receive National Insurance Contribution (NICS) relief
• 80% of businesses said that a matching system that would see the Government contribute £1 for every £2 saved would encourage employees to save the same or more into their pension.

Andy Briggs, chief executive UK & Ireland Life at Aviva, said: “Less than 10% of businesses we surveyed thought a Taxed-Exempt-Exempt, or Isa system, would lead to people saving more into a pension while 67% thought it would cause a reduction in saving.

“The clear message from employers is that an Isa-system is likely to reduce pension saving levels, including their own contributions. Employers make around two thirds of all contributions to pensions so how they are incentivised to contribute is very important.

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“The title of the consultation is ‘strengthening the incentive to save’ but it appears that employers don’t believe that a move to an Isa-system would achieve that.”

Some 52% of employers who responded said that if an Isa system was introduced and NICS relief was abolished on employer contributions they would either level down pension contributions or reduce their spend on other benefits. Just 10% of businesses said they would absorb the extra cost and continue as normal. Some 82% also said that it was very important that employer pension contributions remain tax free to employees and continue to receive relief on NICS.

In contrast, many businesses believe the introduction of a flat rate of tax relief for all workers, regardless of salary, would have a positive impact with 80% agreeing that a rate which saw the government contribute £1 for every £2 someone saved would encourage people to either save more or at least the same as they are now.

“I am pleased that businesses have backed our “Save 2 get 1 free” strategy,” said Andy Briggs. “It’s the cornerstone of our proposals to reform the incentive for pension saving. Make it simpler to understand and make it fairer. Save 2 get 1 free does exactly that.”

Aviva surveyed 118 Friends Life (now part of the Aviva group) corporate pension clients this month (Sept 2015).