Claims the government is planning to scrap tax relief on better-off people's pensions have been angrily denied by Work and Pensions Secretary Andrew Smith.

A number of Sunday newspapers suggest that the Treasury has floated the idea of ending the 40% tax relief on pension payments for higher-rate tax payers.

During a heated Commons exchange, Shadow Work and Pensions Minister David Willetts challenged Mr Smith, on behalf of "millions" of people paying into pension schemes, to categorically rule out the plan.

Mr Willetts said it was a "very bad idea at a time when the government is trying to encourage people to save for their retirement".

And he accused Mr Smith of trying to invent another "stealth tax".

'Wait and see'

Mr Smith insisted "we do not have any such plans".

He told MPs: "Ministers have taken no decisions of the sort suggested, it is all feverish speculation.

"It would be best to wait and see what is in the pre-Budget report and the Budget itself."

A number of Sunday newspapers suggest that the Treasury has floated the idea of ending the 40% tax relief on pension payments for higher-rate tax payers.

The Sunday Times said the plan would be announced in a government green paper in November.

At present payments into pension funds are tax-free - which means the state effectively contributes 22p for every 78p invested by a standard rate taxpayer, and 40p for every 60p invested by a higher rate taxpayer.

'More equitable'

Nearly three million people receive the higher rate of tax relief, with one No 10 adviser on pensions reporting that a quarter of all money spent on tax relief goes to the richest 2.5% of the population.

The Sunday Telegraph quoted one minister as saying incentives to invest in pensions should be "more equitable".

"There are huge incentives for the richer people but the incentives are much less attractive for those on the margins, who are exactly the ones we need to be encouraging to take out pensions," the minister said.

The Sunday Times quotes Paula Diggle, head of pensions and savings at the Inland Revenue, as saying the current tax breaks were "unsustainable".

The newspaper said that the plans are being drawn up by Tony Blair's Forward Strategy Unit, the Treasury, the Department for Work and Pensions and the Inland Revenue.

It says ministers are frustrated that not enough people are saving for retirement despite tax breaks worth more than �14bn a year.

The newspaper said the proposal was for the government to subsidise pension contributions on a sliding scale, contributing �1 for every �1 invested up to �500, but with the incentive declining as the contributions grow.