Personal pension contributions hit a record high in 2016/17 with £24.6bn being paid into personal pensions – up from £24.3billion in 2015/16.
The cost of tax relief increased to £38.6bn from £38.5bn.
AJ Bell senior analyst Tom Selby commented: “While most would have expected the tax relief bill to soar as automatic enrolment continues to be rolled out to millions more employees and employers, it appears the introduction of the annual allowance taper – which reduces the pension savings incentives for higher earners – has stemmed the tide somewhat. That said, the cost is likely to spiral ever higher as minimum auto-enrolment contributions are scaled up from 2% today to 8% from April 2019.
“On one hand, an annual bill £25.2bn and rising could be viewed as increasingly unsustainable. On the other hand, average pension savings levels in the UK remain far too low. Pulling the tax relief rug from under the system now – just as minimum auto-enrolment contributions edge northwards and people get used to the idea of sacrificing some of their hard-earned salary for retirement – would be a huge risk and could potentially undermine the entire reform programme.
“The Chancellor’s decision to turn the Spring Statement next month into something of a non-event – certainly from a tax perspective – should mean pension tax relief is spared, at least for now. Indeed, it’s possible the energy-sapping nature of the Brexit process will mean savers enjoy a period of relative stability on the pensions front during this Parliament.”
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