MPs call for govt review of pension tax relief

The Public Accounts Committee (PAC) has called for the government to conduct a review into pension tax relief, citing concerns that HMRC does not understand its impact.

The MPs recommended that HMRC establishes and publishes the criteria it will use to determine which aspects to evaluate within three months and to have evaluated the impact of pension tax relief, which was estimated to cost £38bn in 2018/19, within 12 months.

Concerns were raised about the lack of data HMRC publishes on who receives pension tax relief and that some groups were not benefiting from it when they should be.

The PAC noted that there were around 1.75 million low-paid and part-time workers earning less than the personal allowance, of whom around three-quarters are women, who will not be getting tax relief on their pension contributions after being auto-enrolled into workplace schemes.

To rectify these concerns, the committee recommended that HMRC should assess which groups are benefiting from pension tax relief and publish its findings.

When MPs asked HMRC why it had not properly externally reviewed any of the ten largest tax reliefs since 2015, HMRC stated that some were difficult to evaluate and it needed to consider evaluating reliefs that “politicians might be interested in reforming”, but it was “keen” to move towards a systematic approach for deciding which reliefs to review.

HMRC added that pension tax relief has been subject to extensive evaluative attention in 2015 but admitted that it had not commissioned an external review into the policy.

The Treasury noted that the government had announced in its 2020 Budget that a call for evidence would be published in spring 2020 on the net pay anomaly, but that its publication had been delayed due to the Covid-19 pandemic.

Commenting on the PAC’s call for review, Canada Life technical director, Andrew Tully, said: “The Budget later in the year is where there will be more focus around spending plans for future years.

“The government may look again at pension tax relief although the difficulty in implementing change in a simple, straightforward manner continues to be a significant issue.

“The vast majority of tax relief is given to defined benefit (DB) schemes, so any changes need to cover both DB and defined contribution (DC).

“Making changes in the DC market only is simply playing around the edges. In addition, pensions are already hugely complicated, so any changes need to simplify matters to help people better understand the benefits of saving in a pension.”

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