The Treasury has clawed back more than £600m from breaches of the annual and lifetime limits on pensions savings, according to estimates from Hargreaves Lansdown.
On Thursday (26 September), HM Revenue and Customs (HMRC) issued an update on some of its personal pension statistics that revealed more than 37,000 savers were hit with annual allowance charges in 2017/18 – double the number recorded in the previous year.
HL estimated savers who breached the annual allowance paid £498m in tax charges in 2017/18, up from £335m the year before. HL’s estimates assumed those who breached the annual allowance were 40%-rate taxpayers.
Meanwhile, 4,550 pension savers were taxed for breaching the lifetime allowance (LTA), a 36% increase on the 3,350 individuals who breached the threshold the year before. They paid £185m in tax charges, up from £144m the previous year.
In the last decade, the annual allowance has gradually reduced. In 2007/08 financial year, the annual allowance stood at £225,000. It rose to £255,000 in 2010/11 but stood at just £40,000 in 2017/18, as it does today.
The same is true for the LTA. At its height in tax years 2010/11 and 2011/12, individuals could draw £1.8m of pension benefit before breaching the LTA and triggering an extra tax charge. By 2017/18, it had decreased to £1m.
HL senior analyst Nathan Long pointed out the amount of money being “clawed back” by the government from people saving for their future had “ballooned” in the past year.
“The government put this down to the success of an education campaign on the topic, but this also coincides with a reduction in the amount people can pay back into their pensions after having accessed some of their retirement savings, and on-going turmoil for high earning workers in the public sector with generous, albeit inflexible pensions.
He added: “A wholesale review of the system is needed as there are just too many wrinkles in the pension rule book that are causing trickle down complexity, it is no wonder people are getting caught out.”