Pension Tax Relief

Mr. Betts
To ask the Chancellor of the Exchequer (1) if he will estimate the savings to public funds of restricting all pension tax relief to a maximum of 22 per cent.; and what that saving is estimated to be in the first year in which it is intended to implement the proposed new personal pension arrangements;

(2) if he will estimate the cost to public funds of the 1 per cent. contribution to be made to personal pension arrangements under the Government’s recent proposals in the first year in which the arrangement will come into effect.

Ed Balls
In relation to the savings from restricting tax relief on pension contributions to a maximum of 22 per cent., I refer the hon. Member to the answer given to the hon. Member for Eastleigh (Chris Huhne) on 26 April 2006, Official Report, column 1175W.

The estimate of the cost to public funds of the tax relief available to individuals in the proposed system of personal accounts is extremely uncertain and will depend on individual levels of participation. The regulatory impact assessment (RIA) published in May 2006 by the Department for Work and Pensions—“Security in retirement: towards a new pensions system”, “Regulatory Impact Assessments and technical annexes”—estimates that the increased saving resulting from the proposals could increase tax relief paid on individual contributions by around £1 billion once the scheme is fully operational. On the same central assumption of take-up as the RIA for the first year of personal accounts, the cost of tax relief on individual contributions is estimated to be £350 million, of which £100 million is estimated to be higher rate tax relief. The costs are lower in the first year owing to the proposed three-year phasing of contributions for both employers and employees.