As you may have seen, The key points are:
The overall cost of tax relief rose only slightly from £38.5 billion in 2015/16 to £38.6 billion in 2016/17; this represents a stabilisation after some large increases in previous years;
Well over half the cost of tax relief is in respect of contributions made by employers, particularly into final salary pension schemes; these schemes are almost all closed to new members and so these contributions are to help meet the increasing cost of past pension promises;
Tax relief on pension contributions made by the self-employed remains pitifully low at £700 million, barely half the level in 2007/08.
Upward pressure on the cost of pension tax relief comes from:
More people saving into pensions through automatic enrolment;
More people putting money into pensions because of the ‘pension freedom’ reforms of 2015;
Increased employer contributions to deal with deficits in occupational pension schemes, though these fluctuate substantially from year to year;
However, there have been a series of cuts to the limits on pension tax relief since 2010, including:
Cuts in the lifetime allowance from £1.8m to £1.5m in 2012, £1.25m in 2014 and £1m in 2016;
A cuts in the annual allowance from £50k to £40k in 2014;
A new ‘tapered annual allowance’ for higher earners, taking the maximum annual allowance for the highest earners down to £10k;
A cut in the Money Purchase Annual Allowance from £10k to £4k;
Commenting on the figures, Steve Webb, Director of Policy at Royal London said: ‘Successive Chancellors have viewed pension tax relief as a ‘honey pot’, convenient to dip into whenever they are short of money. But pensions should be a long-term business, and six cuts in the last seven years simply undermines confidence in the system. It is time that the Chancellor committed to no more changes to tax relief for the rest of this Parliament, especially now that the cost of tax relief has stabilised, so that people can plan with confidence. Instead, there needs to be a focus on the self-employed whose level of pension saving remains worryingly low’.
HMRC figures can be found here |
