Pension tax relief costs soar to £41bn as auto-enrolment gathers pace
January 24th, 2018
The cost of pension tax relief for 2017/18 will reach about £24bn, according to government figures, and is set to increase as auto-enrolment contributions rise.
Latest figures from HM Revenue & Customs (HMRC), also showed an additional £16.9bn in National Insurance relief on employer contributions brought the total to £41bn.
Provider AJ Bell said the total bill for pension tax relief would continue to grow as auto-enrolment reforms – such as scrapping the earnings band and extending the reforms to 18-year-olds – come into force.
Senior analyst Tom Selby said the cost of providing pension tax relief seemed “inexorable” and predicted the Treasury would again look at the issue.
“With anaemic GDP growth putting pressure on public finances and the government desperate for funds for other areas such as the NHS, the eye-watering cost of incentivising people to save for retirement will inevitably come under the Treasury’s microscope once again.
“This is understandable but it is vital any future reforms to the system are carried out in a measured way, taking into account the risk that cutting back pension tax relief will put people off saving and see them fall back on the state in the future,” he said.
AJ Bell called for an independent pensions commission to be set up to propose reforms based on the long-term interests of savers.
Selby added: “The recommendations of this commission could form the basis of cross-party agreement to deliver stability in the pension system – something which has been successfully delivered in other countries.
“Successive governments have been guilty of tinkering with pension tax relief, creating a system mired in horrendous complexity which even experts struggle to understand. This complexity, combined with a constant shifting of the goalposts, undermines confidence and puts people off long-term saving.”
Source: Professional Adviser