Occupational Pensions: Tax Allowances

Treasury written question – answered on 8th October 2019.

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Photo of Baroness Altmann Baroness Altmann Conservative

To ask Her Majesty's Government, with respect to the National Statistics data published in April, which estimated the total cost of pension tax relief in respect of registered pension schemes for the year ending 5 April 2018 at £36.3 billion including £4.3 billion in tax relief on employee contributions to occupational pension schemes, (1) what is the estimated figure of gross pension contributions on which this figure was based, and (2) what specific assumptions were made as to the rates of tax applicable in arriving at the figure of £4.3 billion; and whether these assumptions included that all employees making contributions to occupational schemes receive the full tax relief to which they are entitled, including those contributing to net pay pension schemes.

Photo of The Earl of Courtown The Earl of Courtown Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

An error has been identified in the written answer given on 09 September 2019.

The correct answer should have been:

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 26th 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 26th 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.

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Photo of The Earl of Courtown The Earl of Courtown Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

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 26th 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 26th 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.

Does this answer the above question?

Yes0 people think so

No0 people think not

Would you like to ask a question like this yourself? Use our Freedom of Information site.