Pension tax relief hits record £51bn

Pension tax relief hits record £51bn

Dec 12, 2023

The amount of annual pension tax relief has exceeded £50bn for the first time, an increase of £14bn in five years

In 2022-23 taxpayers received a total of £51.3bn in tax reliefs on pension contributions with £25.4bn on income tax and £25.9bn on national insurance contributions. These figures have risen significantly in the last five years, up from £19.9bn on income tax, and £17.3bn on NICs in 2017-18.

This means that pension tax relief accounts for the largest single non-structural tax relief followed by private residence relief at £36.7bn and reduced rate VAT breaks on food costing £23.3bn.

The effect of fiscal drag will also increase the cost of funding the income tax break on pensions, set to rise by over £2bn to £27.7bn next year. This is due to the changes in national allowance and the abolition of the lifetime allowance.

NICs relief is set to drop slightly in the next tax year due to the 2% cut in the national insurance rate at the Autumn Statement this November, although it will still cost the Exchequer £25.3bn in 2023-24.

Helen Morissey, head of retirement analysis at Hargreaves Lansdown said: ‘The amount pensions save us in tax continues to soar, hitting an eye watering £51.3bn in 2022-23, up more than £14bn over the past five years.

‘This is spread across income tax relief which saves us an estimated £25.4bn and national insurance which accounts for a further £25.9bn.

‘Much of this is down to the success of auto-enrolment which has brought over 10m people into pensions, as well as wage growth pushing up pension contributions. These figures throw into sharp relief the enormous impact tax reliefs can have on how much people end up with in retirement.

‘Pension tax relief is a real hidden hero of pensions. A basic rate taxpayer contributing £80 will have it boosted up to £100 by tax relief.  A higher rate taxpayer needs to contribute just £60 to get the same boost to £100. However, relatively few people understand what tax relief is or the impact it can have.’