HMRC has estimated that the total income tax relief on pension contributions will be £21.2bn in 2019/20.

This represents an £800m increase from the previous year, when there was a total of £20.4bn of pension contribution tax relief.

The figures cover net relief on contributions, investment returns and tax paid in retirement.

Despite the increase, Just Group group communications director, Stephen Lowe, said that it should not be seen as a “cost” as it “described investment in the living standards of our future retirees”.

He continued: “There are around 20 million people actively contributing to pensions and the average saver will see tax relief boost their pension by at least 20 per cent each year.

“Although tax relief is unevenly spread and there are limits on how much tax relief can be claimed the fact is a tiny proportion of people breach the allowance.

“In effect, millions of workers are missing out on billions of pounds by shunning the generous tax breaks offered to pension savers by the state.

“It’s unfortunate we have to describe pension tax relief as a ‘cost’ on society because it immediately suggests it's a burden on the taxpayer.

“Pensions are about providing a sustainable income for those no longer working - that's hard to argue with when the alternative is pensioner poverty or a heavier burden on the state to provide for those without adequate income.

“Relief from tax is a core incentive to encourage people to think long term and reduce the burden on future governments.”

HMRC has also estimated that tax relief from employer pension contributions will increase by £1.3bn year-on-year to £18.7bn in 2019/20.

HMRC noted: “This is a combination of National Insurance relief for employers on the pension contributions they make as well as the saving for individuals from the employers’ contributions not being treated as part of their gross income and subject to employee National Insurance contributions.”

Willis Towers Watson senior consultant, David Robbins, questioned the incentive and reason for the estimates, saying: “HMRC has not said why it expects these costs to increase.

"Factors pushing the numbers up include higher employer contributions in public sector schemes – because the governments treats not making employees pay tax upfront on these contributions as part of tax relief, higher employment, and higher minimum contributions under automatic enrolment.

"Pushing the other way are the ongoing decline in the number of private sector employees in expensive defined benefit schemes, a higher 40 per cent tax threshold, and – at least under current policy – a tapered annual allowance that is biting harder from 2019/20 because high earners can no longer carry forward unused allowances from the days when they could still save up to £40,000 a year.

“The government is reviewing the tapered annual allowance following the huge problems that this has caused in the NHS. If the Treasury insists on clawing back the cost of any change by tightening other restrictions on pensions tax relief rather than through changes to other parts of the tax system, it will point to these projections to justify that.

“While these may be official estimates, they do not measure anything very meaningful."

Share Story: