Tax relief on pensions could cost £4bn

Compulsory pension contributions in the UK could cost the government £4bn a year in tax relief, Aon Consulting has calculated.

The additional cost arises because compulsion money, that would previously have gone in wages or profits, which are taxable, will go into pensions savings, which attract tax relief.

The figure is based on company’s research which calculates a rate of compulsion at 9% of pay in line with the Australian model.

Sign up to our weekly round-up of HR news and guidance

Receive the Personnel Today Direct e-newsletter every Wednesday

Email(Required)

OptOut

From time to time, we will send you emails about selected products, events and services from Personnel Today and OHW+ - but you can choose to opt-out at any time. If you do not wish to receive these emails, please tick this box.

Phone

This field is for validation purposes and should be left unchanged.

Δ

Donald Duval, chief actuary at Aon Consulting, said: “With compulsion being on the agenda of many politicians during the build-up to the elections, proponents of compulsion need to outline how they will fill the hole in government finances.

“While over time, compulsion would increase private pensions, and, therefore, reduce the need for the pensions credit, in the short term the government would still face a sharp drop in revenue, which would need to be accounted for.”