Middle income savers risk facing the biggest savings shortfalls if the UK government decides to move tax relief on pension to a flat rate, warns Hymans Robertson.
The consultancy said the concept of moving to a flat rate would penalise 40% higher rate taxpayers, as it would discourage them from putting aside sufficient funds for retirement.
The current system sees taxpayers receive relief at the highest marginal rate of the tax they pay.
According to the firm, the idea of a flat rate is currently being considered by chancellor George Osborne ahead of the next budget statement on 16 March.
Chris Noon, partner at Hymans Robertson, said: "A move to a flat rate of tax relief redistributes tax relief away from additional rate tax payers, which is justifiable as they tend to save enough. But, it also takes tax relief away from higher rate taxpayers, which is a problem as this is the group facing the biggest savings shortfalls in retirement."
Instead, the firm argued the chancellor should consider a capped rate over a flat rate.
"We recommend Mr Osborne limits the highest level of tax relief on pension contributions to 33%. This would mean that basic rate taxpayers would get the full 20% relief but higher and additional rate taxpayers would only get 33%," said Noon.
"Clearly any system has to be sustainable, both now and in the future. A capped rate of relief gives the government fiscal control, introducing a controllable cap on pension tax relief which can be changed independently of income tax bands to help balance the books. It will also provide stable long-term costs as a percentage of GDP."
For employers and the pensions industry, he said a capped rate would be a "less disruptive change" than a flat rate and would provide a better approach for employers in managing retirement provision.
Noon added both employers and the industry were still adjusting to the changes from pension freedoms introduced in April last year.
"The infrastructure is largely in place to implement a capped rate of relief. Introducing a flat rate, on the other hand, would create considerable upheaval and cost," he said.