The cost of pension tax relief has risen to £27bn in 2022/23, according to government figures released today (12 January).

The figures from HM Revenue & Customs show the estimated cost of income tax relief on pension contributions in the 2022-23 tax year is likely to be around £5bn higher than five years ago, and will now constitute around 1.1% of gross domestic product.

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Source: HMRC Non-structural tax relief statistics (January 2023), Section 7.15

According to Lane Clark and Peacock (LCP), the figures should be welcomed as evidence of the success of auto enrolment (AE), which has seen 10 million additional people enrolled into workplace pensions

LCP added that the increase in the minimum mandatory rate of contributions from 2% when AE began a decade ago, to 8% from April 2019, also contributed to the figures - noting that this change contributed to the increased cost of nominal tax relief, which has risen by 17.4% since 2019/20.

LCP partner Sir Steve Webb urged against further tinkering with pension tax rules - saying the rising cost of pension tax relief should "a cause for celebration not a justification for cuts" and adding the increased costs were a sign of the success of the government's efforts to get more people saving for a pension.

Likewise, Webb said if companies put more money into defined benefit (DB)schemes to make sure pension promises to date are kept, this should also be welcomed, even if it increases the cost of tax relief - noting that employers were continuing to make "multi-billion pound contributions" into DB schemes to deal with historical deficits

He said: "The government needs to decide if it wants more people to save in a pension or not. If it does, then constant tinkering and cuts to tax relief is not the way forward."