He argued that pensions could be taxed like ISAs - paying in from taxed income and tax free to take out, receiving a top-up from the government in-between.
Osborne said:
"While we’ve taken important steps with our new single tier pension and generous new ISA, I am open to further radical change.
"This idea, and others like it, need careful and public consideration before we take any steps. So I am today publishing a Green Paper that asks questions, invites views, and takes care not to pre-judge the answer.
"Our goal is clear: we want to move from an economy built on debt to an economy built on the more secure and productive foundations of saving and long term investment."
Additionally, Osborne announced changes to pensions tax relief given to the highest earners. From next year their Annual Allowance will be tapered away to a minimum of £10,000. The money will be used to increase the inheritance tax allowance to £1m.
John Fox, managing director of Liberty SIPP, said:
"There's no place for the faint-hearted in the pensions industry these days.
"The Green Paper will scare the life out of many traditional pension providers, but innovation, change and empowering people to save in the way that suits them best, are key to defusing the pensions time bomb.
"Making pensions more like ISAs is another potentially radical step and has come while the industry is still coming to terms with the new pension freedoms.
"To say the Government has shaken up the pensions industry would be a massive understatement.
“For the first time, we may actually be seeing some joined-up thinking on pensions — a regime that encourages people to save irrespective of generation.
"As expected, the increase in IHT is being funded by cutting the tax reliefs of higher earners on their pension contributions. As ever, the tax god giveth, and it taketh away."
Stephen Green, senior consultant at Towers Watson, said:
“If someone with an income on the taper is saving up to the limit, they will pay £675 in tax for each £1,000 of additional income unless they cut back their pension contributions at the same time.
“It gets worse if they want to save their extra income in a pension; if you include the tax due in retirement, they could eventually lose £975 of their £1,000 pay rise to the taxman! In extreme cases, the tax rate can even exceed 100%.
“This policy will make it much harder for high earners to plan their pension saving. First, they won’t know their income until the end of the year, so won’t know how much they can save without incurring tax penalties. Second, cutting back on pension contributions to avoid penal rates of tax may not always be the right thing to do: it can mean losing matching contributions from the employer – though we expect that many employers will respond to this change by offering cash alternatives to affected staff.
“High-flyers will now have to do more of their pension saving before their earnings peak – that is, when they have less disposable income. For people who expect to be on big salaries in a few years’ time, it could be now or never to save large sums in a pension.
“Rather than just reducing their future pension savings to avoid incurring Annual Allowance tax charges, some high earners may choose to stop saving in pensions altogether. If they do this before 6 April 2016, they can keep a £1.25 million Lifetime Allowance.”
