On the go: The ‘cost’ of pensions tax relief increased by £4.4bn to £41.3bn between 2017-18 and 2019-20, data from HM Revenue & Customs has shown.
According to figures from the tax authority, published on Thursday, gross pension tax relief in 2019-20 is projected to be £41.3bn, up from £36.9bn in 2017-18.
Tax relief on pension contributions is paid at the saver's marginal rate of income tax, meaning basic-rate taxpayers get 20 per cent pension tax relief, increasing to 40 per cent for higher-rate taxpayers and 45 per cent for additional-rate taxpayers.
However, pension commentators have said a large part of the increase will have been due to the rise in mandatory contributions under auto-enrolment. These went up from 2 per cent in 2017-18 to 8 per cent in 2019-20.
Therefore, the rise in the cost of tax relief reflects savers saving more, and should be celebrated rather than used as an excuse for cutting back, according to LCP.
Karen Goldschmidt, pension tax specialist at the consultancy, said: “The chancellor will undoubtedly be looking with great interest at the quoted headline figure of £41.3bn for the ‘cost’ of pension tax relief. But these figures provide no excuse for a Budget raid on pension tax relief.
“The growth reflects millions more workers savings towards their retirement and should be welcomed, not used as an excuse for cuts.
“In addition, a large part of the headline cost of tax relief relates to the cost of public service schemes, where a reduction in relief would either result in big tax bills for public servants or generate little upfront revenue for the government.”
The figures also showed tax paid on pension incomes increased to £19.2bn in 2019 from £18.7bn in 2018.
When tax on pension incomes is taken into account, the net cost of pension tax relief in 2019-20 was £22.1bn, about £2.6bn higher than the 2018-19 figure.
HMRC found £31.3bn was contributed to personal pensions in 2019-20, up from £27.9bn in 2018-19.
The total value of contributions to personal pensions has risen over the past three years by an average of 11 per cent each year.
This article originally appeared on FTAdviser.com
