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New pension stats show annual allowance and lifetime allowance charges are soaring

Date: 23 March 2022

5 minute read

23 March 2022

If you are covering HMRC’s personal and stakeholder pension statistics, please see the following comment from Ian Browne, pensions expert at Quilter:

There are lots of good news stories to be taken from the recent pension figures coming out of HMRC this morning. First is that a huge £31.3bn was contributed to personal pensions in 2019 to 2020 up 12% on the previous year. This really shows that pre-pandemic the public was starting to understand the need to start prioritising saving for retirement as the state pension alone is unlikely to come anywhere close to providing the kind of retirement lifestyle many aspire to. However, what these figures will look like post pandemic is yet to be seen and as we now as we enter a cost-of-living crisis people may understandably prioritise money in their pocket today over ploughing money into their pension.

Similarly, although the positive impact of auto-enrolment does seem to be plateauing, it achieved a significant spike in the number of people contributing to a personal pension over the past few years. There has been no year on year increase with around 9.4 million people contributing in 2019 to 2020, but this is up by a huge 1.2 million people from 2012/13.

Annual and Lifetime Allowance charges

However, the bad news is that the figures also show that our highly complex tax system is catching an increasing number of people out as annual allowance and lifetime allowance charges begin to soar. This is likely to get even more pronounced in future data sets due to the various frozen allowances announced at the last budget..

Annual allowance charges, which have been plaguing the public sector and NHS doctors in particular, causing doctors to reduce their hours is spiking. In 2019 to 2020, 42,350 taxpayers reported pension contributions exceeding their AA through Self-Assessment. The total value of contributions reported as exceeding the AA was £949 million in 2019 to 2020 which has increased from £819 million in 2018 to 2019.

Similarly, in 2019 to 2020, 8,510 LTA charges were reported with a total value of £342 million. This is a 21% increase from £283 million in 2018 to 2019. It is worth bearing in mind that the Lifetime Allowance tax charge was originally only supposed to impact 5,000 individuals yet is now penalising far more than that each year. The Lifetime Allowance is now a problem for affluent people as well as those who could be considered high net worth.

The government should be doing everything it can at present to encourage savers to put money away for their retirement. While auto-enrolment has been a very successful step in the right direction, it’s important that the highly complex rules around the annual allowance and lifetime allowance don’t hamper the good work the policy has done. These rules require an intricate knowledge of the UK’s pension landscape to understand and therefore time and time again catch people out.

With the right advice and with the right holistic retirement plan, the effect of the Lifetime Allowance charge can be mitigated. Either avoiding the charge, deferring part of the charge or potentially reducing it can do this and which route will depend on the individual circumstances of the person. However, this is a complicated area of the pensions landscape and without professional financial advice someone could be facing a 55% immediate tax charge on the excess.

Flexible payments from pensions

Also included in the data is the most recent set of flexible payments from pensions statistics. The most recent data set shows that there was an eyewatering one million payments per quarter at the back end of 2021. Although in 2021, there was an increase in the number of people accessing their pension any fears that we would see significant spikes in pension access never materialised. Although the number of payments and total value has risen, it is nothing out of the ordinary and clearly the government support schemes did their job and prevented a mass exodus of savings and what was taken out seemed to peak in Q2. However, we are now facing a very different beast as energy bills and food are set to soar and pensioners may well feel that they need more each month to get by. While the state pension will rise with inflation going forward and help offset some of the costs it will be far from enough for people to rely on. As such, future statistics are likely to show more people raiding their pensions to pay for their spiralling bills as we enter a fiscally difficult time.

Year

Quarter

No. of Payments

No. of individuals

Total value of payments

Av value per payment

Av No. of payments per individual

Av value paid to individuals

2015

Q2

121,000

84,000

1,560,000,000

12,893

1.440

18,571

2015

Q3

130,000

81,000

1,170,000,000

9,000

1.605

14,444

2015

Q4

123,000

67,000

800,000,000

6,504

1.836

11,940

2016

Q1

142,000

74,000

820,000,000

5,775

1.919

11,081

2016

Q2

296,000

159,000

1,770,000,000

5,980

1.862

11,132

2016

Q3

324,000

158,000

1,540,000,000

4,753

2.051

9,747

2016

Q4

393,000

162,000

1,560,000,000

3,969

2.426

9,630

2017

Q1

381,000

176,000

1,590,000,000

4,173

2.165

9,034

2017

Q2

403,000

200,000

1,860,000,000

4,615

2.015

9,300

2017

Q3

435,000

198,000

1,590,000,000

3,655

2.197

8,030

2017

Q4

454,000

198,000

1,504,000,000

3,313

2.293

7,596

2018

Q1

500,000

222,000

1,700,000,000

3,400

2.252

7,658

2018

Q2

574,000

264,000

2,270,000,000

3,955

2.174

8,598

2018

Q3

585,000

258,000

1,960,000,000

3,350

2.267

7,597

2018

Q4

628,000

264,000

1,900,000,000

3,025

2.379

7,197

2019

Q1

648,000

284,000

2,060,000,000

3,179

2.282

7,254

2019

Q2

760,000

336,000

2,750,000,000

3,618

2.262

8,185

2019

Q3

778,000

327,000

2,370,000,000

3,046

2.379

7,248

2019

Q4

828,000

327,000

2,230,000,000

2,693

2.532

6,820

2020

Q1

827,000

348,000

2,460,000,000

2,975

2.376

7,069

2020

Q2

827,000

340,000

2,280,000,000

2,757

2.432

6,706

2020

Q3

853,000

347,000

2,330,000,000

2,732

2.458

6,715

2020

Q4

907,000

360,000

2,370,000,000

2,613

2.519

6,583

2021

Q1

911,000

383,000

2,600,000,000

2,854

2.379

6,789

2021

Q2

998,000

414,000

2,910,000,000

2,916

2.411

7,029

2021

Q3

1,031,000

419,000

2,700,000,000

2,619

2.461

6,444

2021

Q4

1,102,000

428,000

2,690,000,000

2,441

2.575

6,285

Alex Berry

Alex Berry

External Communications Manager