Pensions  

MPs call for review of pension tax relief

MPs call for review of pension tax relief

MPs have called for a review of pension tax relief in the UK, warning the government knows "too little" about whether the current system offers value for money or encourages saving for retirement. 

A scathing report published by the Public Accounts Committee today (July 20) called on HM Revenue and Customs and HM Treasury to reassess tax reliefs, pointing in particular to pension reliefs which it said would cost £38bn in the 2018/19 financial year. 

The committee warned data published by HMRC on who received pension reliefs was "limited" and concerns were raised some groups were not benefiting from tax relief on their pension when they should.

MPs pointed to the pressures of the Covid-19 pandemic on public finances as cause to ensure tax reliefs were "demonstrably cost-effective" and recommended the taxman evaluate the impact of pension tax relief over the next year.  

The report also called for HMRC to publish data showing who was benefiting from pension tax relief, split by income, groups with protected characteristics such as gender, age, ethnicity, those working in the public and private sectors and those in defined contribution and defined benefit schemes.

The committee said so far the Treasury and HMRC had made "unacceptably slow progress" in improving their management of tax reliefs.

Meg Hillier MP, chairwoman of the Public Accounts Committee, said: "Every budget we get tax breaks announced like baubles hung on a tree and they generate great headlines but the truth is the government has little clue about the value of an enormous cost to the public purse.

"It sometimes fails to predict with any accuracy what tax breaks will cost, and there is often too little interest in whether it delivers what it intended to."

Ms Hillier warned tax breaks were not "freebies" but cost the public purse "hundreds of billions of pounds in lost income".

She added: "The government must know who they benefit and to what end. It’s all still taxpayers' money and government must account for it."

The committee said tax reliefs needed "rigorous challenge" as costs could be much higher than expected and their benefits were not always evident. 

James Riley, president of the Society of Pension Professionals, said on the face of it pensions tax relief looked like an "attractive means" to make savings given the state of the national purse in the wake of the pandemic. 

Mr Riley added: "It’s therefore right and proper to fully review the system. However, under the headline amount the situation is more nuanced. And such a review needs to be thorough and open minded.

"The risk with such a review is that it becomes a politically easy money grab which detrimentally affects the pensions savings of millions.

"Pensions savers will be paying for the pandemic for years to come out of their taxes. Care needs to be taken not to exacerbate the issue of inadequate saving for retirement which will ultimately create further pressure on the nation’s finances."