Pension tax relief costs rise to £60bn, with higher earners receiving more
UKPulse Money Desk
The cost of income tax relief on pensions increased by a quarter in two years, reaching £60bn in 2024-25. Higher-rate taxpayers reportedly receive a greater subsidy for pension savings.
- Income tax relief on pensions rose from £48bn in 2022-23 to £60bn in 2024-25.
- Higher-rate taxpayers receive a 40% tax break on pensions, while standard-rate taxpayers receive 20%.
- Around £40bn of the tax relief is used by higher-rate taxpayers.
Official figures indicate that the cost of income tax relief on pensions increased significantly, from £48bn in 2022-23 to £60bn in 2024-25. This represents a quarter increase over two years.
Higher-rate taxpayers reportedly benefit more from this relief, receiving a 40% tax break compared to the 20% received by standard-rate taxpayers. Approximately £40bn of the total relief is attributed to higher earners.
John Healey is reportedly considering equalising the tax break on pension savings as he reviews public finances ahead of the autumn budget.
Why this matters: The current system of pension tax relief reportedly widens the divide between rich and poor in retirement and between generations, as state subsidies enhance savings for the better off.
What this means for you: If you are a standard-rate taxpayer, you reportedly receive half the pension saving subsidy that higher-rate taxpayers receive.