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Workplace Pensions: Tax Allowances

It has not proved possible to respond to this question in the time available before Prorogation. Ministers will correspond directly with the Member.

HMRC publishes estimates of the cost of pension tax relief which is available in table 6 of HM Revenue and Customs Personal Pension Statistics on Gov.uk.

These estimates were revised on 26^th September 2019 as part of an overall update to HMRC’s Personal Pension and Pension Relief statistics. Estimates of the cost of tax relief on contributions are produced using the Annual Survey of Hours and Earnings (ASHE) for income, individual and employer contributions for members of pension schemes that use the net pay mechanism; and administrative data HMRC holds on relief at source administrative data matched to the Survey of Personal Incomes (SPI) - for income, individual and employer pension contributions for members of pension schemes that use the relief at source mechanism.

The cost of tax relief for all contributions made by individuals is approximately £6.3bn, broken down as the cost of relief on employee contributions to occupational schemes (£4.2bn), to personal pension schemes (£1.6bn), and self-employed contributions to pensions (£0.5bn). Occupational pensions here includes some master trust pension schemes which use the relief at source method. Personal pensions here includes workplace personal pension schemes (such as group personal pensions).

i) The £4.3bn figure referenced is the cost of pension tax relief relating to occupational pension schemes. Estimates of the cost of pension tax relief were revised on September 26^th 2019 as part of an overall update to HMRC’s Personal Pensions and Pension Relief Statistics. The £4.3bn figure referenced has since been revised to £4.2bn.

This £4.2bn figure of tax relief is derived from around £15.9bn of estimated “relievable” individual pension contributions to occupational pension schemes, (where “relievable” refers to our best estimates of contributions which are within the individual’s pensions Annual Allowance).

ii) Marginal rate tax relief is applied to these estimates of “relievable” contributions as if these contributions were taxed. Estimates are produced assuming all members contributing to all pension schemes receive full marginal rate tax relief on their contributions.

As noted in the publication, costs are subject to large revisions and have a particularly wide margin of error – reflecting the variety of sources of data (both administrative and survey) required to produce these estimates.