Chancellor might raid tax aid on pension financial savings of 6m larger earners

Rachel Reeves will be ‘eyeing up’ a raid on the pension savings of up to six million higher earners after figures showed the cost of providing tax relief surged, experts warned yesterday.

Analysis of HMRC figures found the net cost of providing pension tax relief climbed by £1.1 billion from the year before to £48.7 billion in 2022/23.

Around 55 per cent of relief related to higher earners on salaries of £50,271 to £125,140, and another 7 per cent to additional rate payers on £125,140 or more.

Sir Steve Webb, This is Money’s retirement columnist and a former pensions minister, said the figures highlight why the Chancellor is likely to be looking at raiding the pension savings of higher earners at her first Budget on October 30.

Senior public sector workers such as NHS doctors, high-ranking teachers and civil servants could be among higher taxpayers affected by the raid

Higher rate taxpayers affected by any such raid on their retirement pots could include senior public sector workers such as NHS doctors, high-ranking teachers and civil servants.

Sir Steve, now partner at pension consultants LCP, who carried out the analysis, said: ‘There is no doubt that the Chancellor will be eyeing up the large price tag attached to providing tax relief on pension contributions.’

Ms Reeves is expected to consider a proposal by Treasury officials for a flat 30 per cent rate of pension tax relief.

The Treasury has long wanted to tax pension savings to raise much-needed revenue but successive Chancellors have rejected the plan.

Ms Reeves is also expected to look at hikes to inheritance and capital gains taxes to fill a £22 billion ‘black hole’ in the public finances she claims was left by the Tories.