The cost to the government of pensions tax relief was £38.4bn in the 2017/18 tax year, according to latest figures published by HMRC.
This figure was £1bn higher than the previous tax year, although still remains below the £38.6bn figure recorded in 2015/16.
Over this period millions of additional employees have been enrolled into workplace pension over this period, leading pension experts to claim that the amount of tax relief per worker is falling.
The figures show a total of £48bn in tax and national insurance relief was granted on pension contributions – a figure which has remained broadly flat over three years.
Royal London director of policy Steve Webb says: “These figures show there is no justification for any further cuts to pension tax relief.”
Since 2010 pension tax relief has been reduced six times, mainly through reductions to the lifetime and annual allowance.
Webb’s comments come amid speculation that the chancellor may look to reduce this bill further. In the past Chancellor Philip Hammond has referred to the cost of pension tax relief as “eye-wateringly expensive”.
Webb adds: “The Treasury needs to make up its mind whether it wants more people to save in a pension or not. What is remarkable is how little the cost of pension tax relief has risen in recent years given the millions of extra workers who have been automatically enrolled into workplace pensions.
“Every time the Treasury attempt to cut the cost of tax relief they add new complications such as the ‘tapered annual allowance’ and the ‘money purchase annual allowance’ which make the system bewilderingly complicated. These new figures provide no justification for further fiddling and salami slicing with a system that should be stable over the long-term”.
Hargreaves Lansdown senior analyst Nathan Long adds: ’The cost to the taxpayer of providing our pensions has remained flat as Treasury measures designed to limit contributions from the highest earners begin to bite.
“These tweaks are impacting heavily on certain professions, despite occupational schemes accounting for the lion share of the tax relief cost, as employers are still required to shovel money into their defined benefit pensions to prop them up.”
He points out that while the numbers contributing to workplace pensions has increased there has been a drop in the numbers of self-employed contributing to a pension.
He adds: “Delve deeper and there are clues that all but the highest earning self-employed workers are turning their backs on pensions.
“It’s a reminder that a lot rests on the Government’s work where they’re testing nudges to boost saving among the self-employed. If this proves ineffective a more radical shake up to the incentives will be required. The amount the self-employed contributed in 2017/18 is unusually absent from the latest numbers.”