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Tax relief on work pensions doubles

by admin
November 1, 2007
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Loss of employers’ National Insurance contributions through pensions has more than tripled over the period, up from £2.8bn in 1999 to £8.3bn this year, according to figures from HM Revenue & Customs.

The figures show employer contributions to personal pensions have grown even faster than payments made to occupational schemes over the past five years.

Tax relief on employer payments to defined benefit schemes doubled in the past five years from £6.7bn to £13.3bn. This is mainly as a result of many large companies paying sizeable single contributions to reduce deficits in their defined benefit schemes. But over the same period tax relief on employer contributions to personal pensions grew by even more – by 130 per cent from £710m to £1.63bn.

The Revenue points out that the figures do not represent the yield there would be if the tax relief was withdrawn as there would be significant changes in taxpayers behaviour and tax would be collected elsewhere. Earlier this year the Liberal Democrats called for higher rate tax relief on pensions to be abolished.

According to the Revenue the average rate of tax relief on contributions is 29 per cent. Adding in the £1.8bn tax relief received by employees in 2006/07 means that total contributions to personal pensions are now almost £12bn a year. That compares to the 20 per cent relief on investment income in pensions. But both figures are higher than the estimated 18 per cent average tax paid on pensions in payment.

Andrew Tully, marketing technical manager at Standard Life says: “These statistics indicate that the shift towards group personal pension schemes and stakeholders is now well underway. Flexible contracts such as group Sipp will become the engine of further strong growth in this market this year and next.’

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