The government’s tax relief bill is rising, as income tax repayments into personal pensions jump 18 per cent in a year.
Data released on Friday by HM Revenue & Customs showed these repayments hit £2.2bn in 2018-19, which compared to £1.9bn in the previous year.
According to Nathan Long, senior analyst of Hargreaves Lansdown, this was due to the increase in the minimum auto-enrolment pension contributions.
This category of contributions includes payments into personal pensions such as self-invested personal pensions, but also group personal pensions, group stakeholders and group Sipps.
Contributions to the group schemes are dictated by auto-enrolment contributions, but not to the individual plans, which are expected to have fallen due to tapered annual allowance constraints.
The data from HMRC includes the first hike in minimum auto-enrolment contributions, from 2 to 5 per cent, which occurred in April 2018. In April 2019, it increased again to 8 per cent.
These payments are entitled to tax relief which is reflected in the income tax repayments stats.
Mr Long said: “The increase in tax relief granted on personal pensions is a direct result of the increase in minimum contributions under auto-enrolment.
“I’d expect to see a slightly bigger jump in next year’s figures as yet another increase feeds into the figures and the roll out of the government’s flagship retirement saving programme continues.”
Tom Selby, senior analyst at AJ Bell, noted that it was inevitable that the Treasury’s tax relief bill would begin to creep up due to auto-enrolment.
He said: “Measures such as the annual allowance taper will have curbed this to a degree, but if costs rise still further it is inevitable the broader system of pension tax relief will be looked at again.
“If this happens, the government really needs to consider the whole framework with the aim of removing the awful complexity that exists at the moment and encouraging more people to save.
“Ideally this would involve a commitment to long-term stability, so people can have at least some confidence the system they commit their money for decades to won’t be subject to continuous change.”
Overall, the total net income tax receipts for 2018-19 were estimated at £191bn, 6 per cent higher than the previous year.
maria.espadinha@ft.com
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