31 July 2024
If you are covering the latest HMRC private and workplace pension statistics, please see the following comment from Jon Greer, head of retirement policy at Quilter:
Auto-enrolment
“Data out today shows that in recent years, the percentage of new auto-enrolled pension savers who have opted out has increased.
“Pre-pandemic, the figure had normalised at around 4-6%, whereas post-pandemic and cost of living crisis, it has increased to around 7-10%. The fact that up to 10% of people are already opting out of saving for retirement despite the current tax relief and other pension benefits they can gain from saving is cause for concern. Labour’s upcoming pension review will look at pension adequacy encompassing auto-enrolment (AE) reform, including consideration of how to ensure more people are saving at greater levels, but this will come after assessing how to make the current stock of pension accrual work more productively for better outcomes.
“Ultimately, someone has to foot the bill to support people in retirement, and if not enough people save adequately into their pensions then there could be a hugely detrimental impact on the public purse further down the line.
Lifetime Allowance charges
“The figures out this morning represent the final year of lifetime allowance (LTA) charges prior to the LTA charge abolition from the 6 April 2023, and the continued growth shows just why the previous government felt it necessary to enact such change, particularly given the impact on retention of key workers in the public sector.
“In 2022 to 2023, a total of 13,080 LTA charges were reported by schemes through tax returns, an increase from 11,720 the year prior. It is important to note that these figures only tell part of the story as they do not include lifetime allowance charges incurred on payment of death benefits which are not published, although we understand are collated.
“Going forward there will be a fall in the tax revenue generated now that marginal rate tax has replaced LTA charges, forming a dent in government coffers, but Labour dropped its previous plans to reinstate the LTA and will therefore it may look elsewhere to fill it.
“The abolition was an important change and will have been a positive for many. However, it has added some complexity to the system, particularly around when to take your tax free cash. The threshold for the maximum amount of tax free cash that can be withdrawn from a pension is now frozen in cash terms at £268,275, so this needs to be considered if your pension pot is at or above the old LTA threshold. Professional financial advice is therefore key to navigating these complex decisions as other products such as ISAs and onshore bonds come to the fore in respect to retirement planning.
Tax relief
“The latest pension figures from HMRC may be fuel to the fire for a Labour government exploring its options to boost coffers through tax rises. In 2022 to 2023, more than half of all income tax relief on total pension contributions is estimated to have been relieved at the higher rate. 56% was relieved at the higher rate, while 37% was relieved at the basic rate and 7% at the additional rate.
“Though pension tax relief is coming under increasing scrutiny, it is important to remember that it is not money ‘lost’ for the government. Rather, the tax relief acts as an incentive for people to save vital funds to support themselves in the future, while also helping to drive money into the stock market which is another key aim of the Labour government.
“The government must continue to encourage people to save for retirement, and pension tax relief can play a significant role in ensuring people are willing to lock their money away for such a long period of time.
Flexible payments from pensions
“The most recent set of flexible payments from pensions statistics shows the total value of taxable payments withdrawn flexibly from pensions since flexibility changes were introduced in 2015 has now exceeded £83.6 billion.
“There has been a significant increase in the value of payments withdrawn in the first quarter of 2024. Between 1 January 2024 and 31 March 2024, there was a 17% increase in the value of payments withdrawn compared to the same quarter in 2023, as well as a 15% increase in the number of individuals withdrawing. Though the worst of the cost of living crisis appears to have passed, it is clear that more people are reliant on their pensions savings to help make ends meet."
