The cost of pensions tax relief continued to climb in 2022/23, data from HMRC has revealed, with income tax relief on pension contributions in 2022/23 reaching £25.4bn, marking a £5.5bn increase over the past five years.

The figures showed that tax relief on national insurance contributions to registered pension schemes had also grown, reaching £25.9bn in 2022/23, an £8.6bn increase over the past five years.

HMRC suggested that the main drivers for the increasing cost are the success of auto-enrolment, as well as wage growth pushing up pension contributions.

Commenting on the "eye-watering" figures, Hargreaves Lansdown head of retirement analysis, Helen Morrissey, highlighted pensions tax relief as a "real hidden hero of pensions", emphasising the " enormous impact" it can have on how much people end up with in retirement.

She explained: "A basic rate taxpayer contributing £80 will have it boosted up to £100 by tax relief. A higher rate taxpayer needs to contribute just £60 to get the same boost to £100.

"However, relatively few people understand what tax relief is or the impact it can have. As we come up to self-assessment deadlines, it is an important reminder for higher and additional rate taxpayers to check to see if they are claiming their higher rate relief on their tax returns or else they risk missing out."

Morrissey also pointed out that there is scope for these costs to rise further still, as the government has revised its estimations for 2023/24 up to £27.7bn as a result of changes to annual allowance and the abolition of the lifetime allowance.

"However, if we see the Conservatives press ahead with their plan to reduce the basic rate of income tax before the election then we would see these increases tempered somewhat as basic rate tax relief would fall," she added.

Indeed, estimates suggested that the cost of tax relief on national insurance contributions to registered pension schemes is expected to fall to £25.3bn in 2023/24.

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