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HMRC has found that the combined tax reliefs for pensions, including reliefs on contributions and tax-free investment growth, amounted to approximately £52bn in 2023/24.
The 2024 HMRC non-structural tax relief statistics also revealed that the estimated cost of national insurance (NI) contribution relief on registered pension schemes has increased from £21bn in 2019/20, to £22bn in 2024/2025.
The estimated cost of income tax relief on registered pension schemes has also increased in cash terms from 2019/2020 to 2024/2025.
HMRC attributed this to the aggregate value of pension contributions, which generally correlates with broader labour market income.
It also said that growth in labour income over recent years may have supported the rise in the estimated cost of this relief.
The increase in the annual allowance and the abolition of the lifetime allowance have increased contributions and decreased pension tax charges over this period, increasing net tax relief on pensions.
Pension tax relief saved taxpayers £28.5bn in 2023/24, up by £5.8bn relative to five years earlier, and is expected to increase to £29.5bn in 2024/25.
Meanwhile, relief on NI contributions saved taxpayers £23.5bn in 2023/24, up by £2.1bn relative to five years earlier, and is estimated to drop to £22.1bn in 2024/25 due to reductions in rates.
The increase in savings over the past five years highlighted the importance of encouraging savers to increase their retirement contributions.
The HMRC data revealed that while these reliefs play a critical role, they remain poorly understood by the public.
Commenting on the figures, Hargreaves Lansdown’s head of retirement analysis, Helen Morrissey, said tax relief continues to save people billions, a combined £52bn, explaining this came from £28.5bn in pension tax relief and a further £23.5bn in NI in 2023/24.
Morrisey called it “a real hidden hero” that boosts the amount that goes into pensions and makes savers better off in retirement.
She explained that it was expected to rise still further in the future, helped by the abolition of the lifetime allowance as well as the higher annual allowance.
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