HMRC calculates total reliefs on both occupational and personal pension schemes came to £38.6bn, while deductions for refunds and other payments amounted to £13.5bn. 

This meant the total cost of tax reliefs was £25.2bn. The addition of £16.2bn billion in national insurance relief on employer contributions takes the total cost to £41.4bn.

The equivalent figures for 2015/16 show £38.5bn of total relief, less £13.4bn of tax coming in and with an additional £15.8bn of employer NICs, putting last year’s total cost at £40.9bn.

Tom Selby, senior analyst at AJ Bell, 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.

‘With anaemic GDP growth putting pressure on public finances and the government desperate for funds for other areas such as the NHS, the eye-watering cost of incentivising people to save for retirement will inevitably come under the Treasury’s microscope once again.’

HMRC figures for cost of registered scheme tax relief is here.

Report by Pat Sweet