The net cost of pension tax relief is forecast to reach £43.7bn in 2018/19, the latest data from HMRC has revealed.

The majority of the tax relief is for registered schemes, with £25.6bn attributed to personal pensions, while £18.1bn is the total expected cost of employer National Insurance relief.

HMRC’s figures do not include the tax taken by the government on pension withdrawals.

Rising upfront costs of tax relief is primarily driven by automatic enrolment, although the average workplace contribution is just 3.3 per cent, according to Office for National Statistics data.

Commenting, AJ Bell senior analyst, Tom Selby said: “The Chancellor himself not too long ago described the cost of pension tax relief as ‘eye watering’, and these latest figures probably explain why.

“However this analysis ignores the tax savers pay when they take an income from their pensions – a number which has risen as a result of the flexibilities intruded by George Osborne almost four years ago.

“While rumours of radical tax relief reform will inevitably surface once again in 2019 – particularly in the event of a potentially damaging no deal Brexit – policymakers need to consider the impact any changes would have on the fragile savings culture being fostered in the UK as a result of automatic enrolment.

“Tax relief is one of the key incentives offered to savers in return for locking their money away until age 55. Raiding tax relief to fund short-term spending could cause people to reconsider the value of this deal, potentially reducing savings levels and storing up more problems for the future.

“Savers should be asking themselves whether they are getting their fair share of this £40bn government giveaway and consider increasing their pension contributions if not.”

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