Stamp duty on share transactions wipes off on average �8,000 on a pension pot before retirement, an industry body has warned.

Stamp duty has a distorting and restrictive effect

Christine Farnish, NAPF

Abolishing the tax could go a long way towards easing the burden of pension provision among UK employers, and boosting the retirement income of millions of tomorrow's pensioners, the National Association of Pension Funds (NAPF) has urged.

Christine Farnish, the recently appointed chief executive of NAPF, told delegates at a conference that stamp duty had hastened the closure of final salary pension schemes.

The NAPF said the amount of stamp duty paid by each individual member of a pension fund had increased from on average �14 a year in 1985 to �93 in 2000.

By throwing its weight behind abolition, the NAPF joins a number of influential industry bodies, notably the London Stock Exchange, which has long argued that the tax is bad for corporate Britain.

Savings gap

The government wants to shift the balance of state to private funding of pension from 60:40 to 40:60 over the next few decades.

Ms Farnish said stamp duty on pension fund transactions was a contradiction to this policy, and acted as a disincentive and barrier to saving.

"Stamp duty has a distorting and restrictive effect. It raises transaction costs, which in turn means higher costs for employers, in the case of defined benefit schemes, and lower pensions for consumers, in the case of defined contribution schemes," she said.

A recent NAPF survey suggested only 15% of consumers were saving as much as 20% of their salary into a pension scheme.

One-third were contributing nothing, while another quarter had no idea how much they were saving.