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Govt spending on pensions tax relief stabilises

Royal London director of policy Steve Webb

The cost of pensions tax relief remains largely unchanged, according to annual estimates published by HM Revenue & Customs.

The figures, published today, show the cost of pension tax relief rose slightly to £38.6bn in 2016/17 from £38.5bn in 2015/16.

The new data show a contrast to 2015/16, where the cost of tax relief leaped by £3.9bn to £38.5bn from £34.6bn in 2014/15.

Over half the cost of tax relief in respect of contributions has been made by employers, mainly into final salary pension schemes.

These schemes are almost all closed to new members and these contributions help meet the cost of past pension promises.

Tax relief on pension contributions made by the self-employed remains low at £700m and is barely half the level, or £1.3bn, it was in 2007/08.

Elsewhere, personal pension contributions hit a record high in 2016/17 with £24.6bn being paid into personal pensions – up from £24.3bn in 2015/16.

Royal London director of policy Steve Webb says: “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’.”

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