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Pension tax relief forecast to reach £41bn

UK-Currency-Money-Coins-700.jpgThe cost of pensions tax relief for employers is £950m higher than originally estimated for the 2016/17 financial year according to figures published by HM Revenue and Customs.

Its updated estimates on the cost of tax relief show the bill for relief on National Insurance Contributions for employers is higher than previously thought.

Meanwhile the cost of personal pension contributions is £200m lower than estimated.

These figures will push up the forecast cost of combined relief to £40.95bn for 2017/18 compared to £39bn last year.

Relief on personal contributions accounts for £24.05bn and National Insurance relief on employer contributions accounts for £16.9bn.

Hargreaves Lansdown senior pensions analyst Nathan Long says: “The overall cost of relief on pension contributions for 2016/17 ended up being higher than anticipated.

“The revenue overestimated the relief granted to individuals, but underestimated the cost of relief to employers. This could be attributed to a combination of more employers choosing to operate their contributions through salary sacrifice and larger payments into final salary pensions than anticipated in attempt to shrink scheme deficits.”

On the prospect for tax relief reform in the near future, he adds: “While there is not the political inclination to change tax relief at present, if Brexit events were to send the economy into a tailspin, desperate times could call for desperate measures.”



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There are 8 comments at the moment, we would love to hear your opinion too.

  1. Having experienced 364 “expert” economists proclaim in the Times that Thatcherism would lead to permanent and irreversible decline, only to find the opposite.

    Then to experience the defacto euro format of ERM, causing a massive artificial decline, only to find ERM escape heralded a strong recovery (ironically, handled by Chancellor Ken)

    Then, be told by business and political elites that not to join the euro would render the UK an economic backwater, causing UK business transactions to be severely hampered, only to find the opposite.

    Then, to be told by the BoE that just for voting Leave, the UK would suffer an immediate recession and major loss of FDI, only to find the opposite.

    I’ll take Mr Long’s somewhat fanciful comment about Brexit tailspins with the euroscepticism it deserves.

    There’s a big and growing world out there, and almost 90% of it does not involve the eurozone.

  2. Ha Ha! That’s where the NHS funding “Should” be coming from, Why do we fund the 40% towards pensions of those who will only pay 20% in retirement and that’s only for those who remain Paying UK Tax, so many do not! Lets abolish Pension Tax Relief all together, and fund a World Beating NHS, although I personally think we already do have wonderful NHS. Double the nurses and Doctors wages and half the management wages, Job done I think!!!

    • Governments have no capital of their own. Everything they have is taken (one way or another) from the people they serve.

      The treasury as others have pointed out doesn’t “lose” any money through tax relief. It simply doesn’t receive the taxation immediately as this is deferred until retirement (where you are right the tax rate may be lower or potentially not in a large number of cases).

      Abolishing tax relief would definitely discourage any form of saving for retirement apart from in the very cautious (how many would opt out of auto enrolment pretty quickly if there was no tax free cash or tax relief). This could lead to more getting there with nothing to live on and an expectation of reliance on the state (see my first point for how these would be funded). It won’t necessarily provide any more income to the treasury either as the large rise in the “cost” of tax relief is connected in the majority of cases to the rise in those being auto enrolled and large Defined Benefit employers filling their ever yawning deficits for their employees. Both of these have been considered a good thing. The loss of tax relief could also make almost all live DB schemes (public and private) unaffordable and potentially lead to employers being unable to provide the existing benefits promised.

      I assume this loss of the scheme would also apply to the pensions of the doctors and nurses who would need then to fund their own arrangements personally, this is unlikely to be a good result.

      There is no magic pot of money (apart from the wasteful overseas aid budget which could and should be reduced) which can be raided without the fallout meaning something government does will need to be reduced or stopped unless we all agree to pay personally a lot more cash in tax. Paying for the NHS today from tomorrow’s pension arrangements is likely to be short termist in the extreme, especially when tomorrow’s pensioners will be even more numerous than today (and will require an even larger NHS to cope).

  3. I wonder how much tax was raised from pensions in payment?

    Surely that needs to be considered too to give a ‘true’ cost to the treasury for any particular tax year?

    We also need to consider, had relief not been given, the cost on DWP supporting those who would otherwise have spent their income at the time.

    The whole ‘tax relief cost to the treasury’ angle is so much more complicated than simply the headline figures but reflects the short term nature everyone has.

  4. To be honest, I’m dissapointed that neither Michael writing the article, nor any of the commentators on the article pick up on the factual inaccuracy and fallacy that pension tax relief costs the treasury anything.

    Collecting less tax doesn’t cost the treasury a bean, it means that they collected less tax than expected.

    That’s before we even consider the way that language is now used to say “cost to the treasury”.. When that suggest that the Treasury has money of it’s own, or that it generates the income. When the reality is that it has NO money that has not been forcibly taken from the UK populace.

    Yes I may be being picky, but this idea that everyone needs to pay more tax is stupid. What the government needs to do, is stop spraying vast amounts of OUR money up the wall and wasting it.

    • Absolutely right. To quote Churchill: “There is nothing Government can give you that it hasn’t taken from you in the first place”

      If you want to save why not start with the Foreign Aid budget – currently at over £12 billion – more than the net cost to us of the EU.

      Successive governments have tinkered with pensions over the years and the net result is to make them less attractive. Do away with the tax relief and watch them decline further.

  5. Looking at the table there has been hardly any increase in the amount of income tax relief for personal contributions.
    This seems strange when you consider the increase in numbers of employees contributing to pensions as a result of auto-enrolment, increases in contribution rates for public sector employees as schemes have changed, and salary increases.
    I can only conclude that the reason for this is that the amount of tax relief accounted for by 40% taxpayers has been reducing as a result of the Tapered Annual Allowance, reducing Annual Allowance, using-up of Carry Forward relief, and Lifetime Allowance reductions.
    Also the cost of employer NI relief is only half the story – what about the lost Corporation Tax as a result of those massive DB Scheme deficit payments?

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