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The gross cost of pension income tax and national insurance contribution (NIC) relief rose from £68.1bn in 2021/22 to £70.6bn in 2022/23, according to the latest statistics from the Department of Work and Pensions (DWP).
The department’s data showed that the estimated net cost of pension income tax and NIC relief was up from £47.6bn to £48.7bn over the same period.
In 2022/23, 68 per cent of income tax relief on pension contributions was from contributions to personal or private sector occupational pension schemes, while 61 per cent of class 1 primary (C1P) NIC relief was on employer contributions to personal or private occupational schemes.
More than half (56 per cent) was relieved at the higher rate, 31 per cent at the basic rate, and 7 per cent at the additional rate.
The data comes amidst rumours that Chancellor Rachel Reeves could look at reforming pension tax policy as part of the government’s efforts to plug a £20bn ‘black hole’ in public finances.
The DWP’s statistics also showed that the total value of taxable payments withdrawn flexibly from pensions since pension freedoms was introduced in 2015 has exceeded £83.6bn.
In 2023/24, £15.3bn in taxable payments was withdrawn flexibly, up from £11.2bn in 2021/22 and £12.9bn in 2022/23.
Furthermore, in the first quarter of 2024, £4bn of taxable payments was withdrawn flexibly from pensions by 595,000 individuals across 1.4 million payments, with the average taxable withdrawal being £6,800 per person during this period.
This represented a 17 per cent increase in the value of payments withdrawn in this quarter compared to the same quarter in 2023, and a 15 per cent increase in the number of individuals withdrawing.
A total of £12.8bn of individual contributions were made to personal pensions in 2022/23, up from £12.7bn in 2021/22, with £2.3bn of this total being made by self-employed members, the same figure as the previous tax year.
Despite the increase, the number of members making contributions to personal pensions fell from 7.4 million in 2021/22 to 6.8 million in 2022/23, while the number of self-employed workers making individual contributions to personal pensions remained broadly consistent at 340,000 across both tax years.
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