Question to the HM Treasury:
To ask Mr Chancellor of the Exchequer, what estimate he has made of the potential savings to the public purse of abolishing higher rate tax relief on private pension contributions.
The estimated exchequer cost arising from income tax relief on contributions made to private pensions, and relief on the investment returns to private pensions in 2012-13 was £34.8bn[1]. Income tax on pensions in payment in the same year was £12.0bn, resulting in a net cost of pensions tax relief of £22.8bn in 2012-13.
The proportion of the cost of income tax relief on pension contributions for varying income ranges and years, is provided in the table below.
% of the cost of income tax relief on contributions | ||||||
Income bands | 2009-10 | 2010-11 | 2011-12 | 2012-13 | 2013-14 | 2014-15 |
Up to £19,999 | 8% | 6% | 5% | 6% | 5% | 5% |
Between £20,000 and £44,999 | 31% | 32% | 35% | 37% | 37% | 36% |
Between £45,000 and £74,999 | 25% | 26% | 28% | 32% | 33% | 34% |
Between £75,000 and £99,999 | 7% | 8% | 8% | 10% | 10% | 10% |
Between £100,000 and £149,999 | 8% | 9% | 9% | 7% | 8% | 8% |
£150,000 or more | 20% | 18% | 14% | 8% | 7% | 7% |
All | 100% | 100% | 100% | 100% | 100% | 100% |
Estimates are based on Surveys of Personal Incomes with projections for 2012-13 onwards. Projected years are subject to uncertainty.
An estimate of the potential savings to the public purse of abolishing higher rate tax relief on private pension contributions is not available. Revenue effects would depend on how changes were implemented and would likely cause significant behavioural effects.
[1] This is published in HMRC National Statistics table PEN6, available here: https://www.gov.uk/government/statistics/registered-pension-schemes-cost-of-tax-relief
Figures for 2012-13 are the latest available.