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Cost of pension and NI tax relief set to surpass £41bn

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Cost of pension and NI tax relief set to surpass £41bn

The government is set to spend £41 billion on pension and national insurance tax relief for the current tax year, new HM Revenue & Customs (HMRC) figures have revealed. 

Tax relief spending on registered pension schemes is forecast at £24.1 billion for the 2017/18 tax year, up from £23.7 billion in 2016/17. 

The addition of £16.9 billion in national insurance relief on employer contributions will take the total cost to £41 billion.

AJ Bell senior analyst Tom Selby said: 'The cost of pension tax relief continues its seemingly inexorable rise as automatic enrolment drives a retirement savings revolution in the UK.

'These costs will increase still further as minimum auto-enrolment contributions are ramped up and plans to scrap the earnings band and extend the reforms to 18 year-olds are implemented.'

Selby anticipates that low GDP growth and subsequent pressure on public finances will cause the cost of retirement saving incentives to fall under the Treasury's microscope once again. 

He added: 'We believe the best way to do this is to establish a commission, independent of government, to take a sober look at the existing framework and propose reforms based on the long-term interests of savers.

'The recommendations of this commission could form the basis of cross-party agreement to deliver stability in the pension system – something which has been successfully delivered in other countries.

'Successive governments have been guilty of tinkering with pension tax relief, creating a system mired in horrendous complexity which even experts struggle to understand. This complexity, combined with a constant shifting of the goalposts, undermines confidence and puts people off long-term saving.'

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