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Pensions tax relief climbs to £33bn

HMRC granted some £32.9bn in tax relief during 2010/11, latest figures have shown.

Of this figure, around £19.4bn was given out for employer pension contributions, which are not liable for taxation.

A further £6.8bn was foregone because pension schemes are exempt from paying tax on their investment income, while the remaining £6.6bn was accrued directly by individuals contributing to a company or personal pension scheme.

The findings indicate that the value of pensions tax relief has risen by 87% in the last decade.

Speaking to the BBC, John Whiting, of the Chartered Institute of Taxation, said: 'The relief on employee contributions has been pretty steady for the last few years, but the relief for employer contributions has risen a lot, probably because employers have had to put a lot more money into their schemes to plug deficits.'

Last month the chief secretary to the Treasury, Danny Alexander, suggested that tax relief for higher rate taxpayers should be halved to 20% to help the Government save money.

The annual allowance for tax-privileged pension saving was reduced from £255,000 to £50,000 last year, while the lifetime allowance on money that can be accrued in a pension fund and still receive tax relief, is set to fall from £1.8 million to £1.5 million from April 2012.

The Government's new pension auto-enrolment scheme will also start to take effect from October 2012.