Total UK personal pension contributions jumped almost a fifth to hit an all-time high last year, according to Salisbury House Wealth, although the self-employed are contributing significantly less than they have in the past.
As the graph below shows, personal pension contributions were up almost 20% to £24.3bn, from £20.3bn the year before. Salisbury House Wealth said this was the first time the value of pension contributions, which reached £20.9bn in the 2007/08 tax year, had surpassed pre-recession levels.
The financial adviser attributed the increase in contributions to April 2016’s reduction in the annual allowance for those earning more than £150,000. It added that rumours other reductions in pension tax breaks could be on the horizon had helped to keep pension contributions from high earners at an elevated level.
Other factors driving the rise in pension contributions, Salisbury House Wealth suggested, were the government’s auto-enrolment scheme and the recovery in stockmarkets since the financial crisis, with rising share prices possibly giving people greater confidence putting money into a pension fund would be “a worthwhile investment”.
Self-employed contributions down
Although overall personal pension contributions may now have surpassed pre-recession levels, however, contributions from self-employed workers now stand at around half of what they were before the financial crisis.
As the following graph shows, in 2015/16, the self-employed contributed £1.7bn to their pensions, which was more than 50% % lower than they did in 2007/08 when they contributed £3.5bn.
According to Salisbury House Wealth, self-employed small business owners may be depending on the money they make from the eventual sale of their business to support them in later life, rather than making regular pension contributions.
It added, however, that this could be a risky approach to take as small businesses rarely make it to the stage where they can be sold for a substantial amount.
Salisbury House Wealth managing director Tim Holmes said: “Pension contributions reached a record high last year but this is masking the low levels being saved by self-employed workers.
“It is really important self-employed workers have a pension in place because it acts as a safety net. Undrawn pension funds remain one of the few assets that are safe from creditors if an entrepreneur becomes bankrupt.”