Tax Allowances

Treasury written question – answered on 15th January 2014.

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Photo of Mark Hoban Mark Hoban Conservative, Fareham

To ask the Chancellor of the Exchequer

(1) what assessment he has made of the effect of tax relief on (a) pension contributions on the overall level of contributions and (b) income and capital gains from ISAs on the overall level of non-pension savings;

(2) what assessment he has made of the effect on reductions of the (a) lifetime allowance and (b) annual allowance for pension contributions on the overall level of pension saving.

Photo of David Gauke David Gauke The Exchequer Secretary

Tax relief on pension contributions is one of the primary means by which the Government encourage people to save for their retirement. In 2011-12 an estimated £34.9 billion of tax relief was provided on contributions to approved pensions schemes:

http://www.hmrc.gov.uk/statistics/pension-stats/pen6.pdf

Tax relief on income and capital gains from ISAs is forecast to be £2.85 billion in 2013-14 as shown in Table 1.5:

http://www.hmrc.gov.uk/statistics/expenditures/table1-5.pdf

The effectiveness of these reliefs is kept under ongoing review as part of the normal policy process.

The reductions in the lifetime allowance and the annual allowance affect only the wealthiest pension savers; 99% of pension savers make annual contributions worth less than the annual allowance of £40,000, while 98% of those approaching retirement have pension pots valued at less than the lifetime allowance of £1,250,000.

The Tax information and Impact Note produced for Budget 2013 estimated that 140,000 individuals would be affected by the restriction of the annual allowance to £40,000. Furthermore, 360,000 people were expected to be affected by the new lower lifetime allowance of £1,250,000. Some of these individuals are expected to reduce their pension contributions, but the vast majority of pension savers will be unaffected. Further details may also be found in this document:

http://www.hmrc.gov.uk/budget2013/tiin-1046.pdf

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