Members of occupational pension schemes claimed £4.3bn in pensions tax relief in 2017/18, as total relief climbed £1.1bn.
Tax relief granted to employers and employees of occupational pension schemes hit £23.3bn in the 2017/18 tax year, rising from £22.5bn the year before.
In figures released today (30 April), HM Revenue & Customs (HMRC) disclosed that employer tax relief grew by £600m over the year, while employee relief rose by £200m.
Across all pension provision, £38.4bn of tax relief was granted, up from £37.3bn in the previous year, while government receipts of income tax levied on pension payments also increased by £500m.
The net result was that the total immediate “cost” of tax relief to the government was £20bn.
Freedom withdrawals pass £25bn
The figures came as HMRC also revealed £25.6bn has been withdrawn from pension schemes under Freedom and Choice, as reported by providers since the policy came into effect in 2015.
The first quarter of this year saw record figures for both the number of individuals using the freedoms, as well as the number of payments made. Payments were made to 284,000 individuals with £2.06bn given out across 648,000 withdrawals. The average member withdrew £7,250, while the average withdrawal amounted to £3,180.
The figures are marginally higher than in Q4 2018 when 264,000 savers used the freedoms to access an average of £7,200.
Aegon pensions director Steven Cameron said the longer-term trend showed, however, that savers were withdrawing less cash on average. For example, the average withdrawal in the first year of the freedoms was £8,430, compared to £3,358 across the 2018/19 tax year.
“This is encouraging as with greater flexibility comes greater responsibility and the freedoms have also introduced an increased risk,” he said. “Historically, retirees would receive a fixed income which would last them for the rest of their life, but now many are responsible for investing appropriately and ensuring they do not overspend, risking their pension pot running dry partway through retirement.
“The more people who take advantage of the pension freedoms, the greater is the need for access to professional financial advice.”