Brown urged to scrap stealth tax on pensions

The demands, made while Parliament has been on a brief recess, follow the decisions by Ernst & Young and others to close their final salary schemes, blamed on the removal of the £5bn a year tax relief.

Former Labour Pensions minister Frank Field warned the loss of the right of pension funds to claim tax relief on dividends must be reversed in order to shore up company schemes, as others companies close schemes to new employees following the E&Y example.

The call comes after a survey released last week by KPMG showed that many employees faced the prospect of a 'lean retirement' if they continued to make low contributions to their defined contribution schemes, the replacement for final salary schemes.

According to KPMG, pension income under defined contribution schemes could be as much as one-third lower than under final salary schemes.