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Rich get 2,000% more in pensions tax breaks than poor

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The well-off are receiving tax breaks on pension contributions worth on average 20 times those of ordinary workers, according to reports.

People in the UK earning more than £150,000 a year and paying into pensions attract tax relief averaging £12,000 annually. This compares with just hundreds of pounds for the typical pension saver, according to a report in The Telegraph.

In some cases, top earners are pocketing pension relief worth £25,000 a year, close to average gross earnings in the country.

The Telegraph’s report was based on research which originally appeared on investigative news site Exaro. The research used government figures to calculate the 20-times multiple in average tax savings for the UK’s highest earners.

The analysis shows that tax relief on pension contributions is expected to total around £20bn in total this financial year. Some £3bn of this will go to a maximum of 250,000 people earning more than £150,000 a year.

However, around 11 million basic-rate taxpayers are projected to share about £7bn of this year’s total tax relief for pension contributions.

Specialists in the field say that the difference in average tax savings revealed by Exaro’s analysis – described by one as “stark” – shows that pension relief for top earners is ripe for reform, which could net the Treasury billions of pounds a year.

John Whiting, director of tax policy at the Chartered Institute of Taxation, said: “Pensions are the last, great tax shelter, so it would hardly be surprising if covetous eyes were looking at this.”

Nick Clegg, deputy prime minister and Liberal Democrat leader, told his party’s conference in September that there was a “legitimate debate” to be had about the cost of pension relief for rich people.

About one in 100 people in the workforce has annual earnings above £150,000, the starting point for income tax of 50% tax. But such people are also entitled to pension relief at up to 50%. By contrast, basic-rate taxpayers receive relief at 20%.

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