Pension investors will receive approximately £25.6bn in tax relief this year, according to the latest official figures.
NFU Mutual has analysed HM Revenue & Customs’ (HMRC) costs of tax reliefs and found that income tax relief on pensions will have rocketed by 40 per cent (£7.6bn) in just five years.
Commenting on the analysis, NFU Mutual chartered financial planner Sean McCann said: “Phillip Hammond described tax relief on pensions as ‘eye wateringly expensive’ and it’s almost certainly going to remain in his sights for some time. We could see some changes announced before the end of 2019.”
According to McCann, the “multi-billion-pound surge” is partly due to the roll out of automatic enrolment as, despite the contributions typically being low, the “sheer numbers” involved will have made a difference.
Another key factor is the pension freedoms, introduced in the second quarter of 2015.
“Savvy savers in their 40s, 50s and beyond are now using pensions as an alternative to a stocks and shares ISA because of the tax breaks. Anyone can access their pension from age 55 and the tax relief on contributions for higher rate taxpayers in particular makes this a very tax efficient option,” McCann concluded.
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