• HMRC publishes breakdown of penalties levied for exceeding pensions annual and lifetime allowances for the first time*
• Pension savers clobbered by penalties of at least £1.2billion between 2011/12 and 2016/17
• Huge cuts in the annual allowance – from £255,000 to just £40,000 – net the Treasury over £950million
• Lifetime allowance charges almost doubled to £102million in 2016/17 compared to a year earlier
*Lifetime allowance stats available here: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/744154/PEN8.pdf
*Annual allowance stats available here: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/744152/PEN7.pdf
Note: Charge for self-assessment calculated by applying 55% charge to contributions reported exceeding the allowance
Tom Selby, senior analyst at AJ Bell, comments:
“Successive Governments have taken the axe to pension savings incentives in recent years, slashing the lifetime allowance from £1.8million to £1.03million and the annual allowance from £255,000 to just £40,000.
“The introduction of the Money Purchase Annual Allowance and the hideously complex annual allowance taper for higher earners have further restricted the tax perks available to savers – and will inevitably boost the Treasury’s coffers.
“With policymakers scrabbling to find around £20billion to boost the NHS, it seems inevitable pension tax relief will once again face the Treasury’s steely glare.
“We remain concerned the moving feast of pension tax relief risks putting savers off saving for retirement. Indeed, research by the Financial Conduct Authority pointed to this very point as a key reason savers do not trust pensions**.
“Ironically this also costs the Exchequer money in the short-term as savers fearful of future cuts pile into pensions in response to the inevitable pre-Budget speculation.
“If policymakers are to convince people it is worthwhile setting money aside for their later years, they need to engender confidence that the rug won’t be pulled from under people’s feet by a future Government.
“This should start with the establishment of an independent commission to review pension tax relief with the aim of simplifying the system and encouraging more people to save. This could then form the basis of a long-term, cross-party commitment to delivering the stability savers so clearly crave.”
The story so far: how the Government has chipped away at retirement savings incentives
|
Year |
Annual allowance (£) |
Lifetime allowance (£millions) |
Tapered annual allowance - adjusted income thresholds (£) |
Money Purchase Annual Allowance (£) |
|
2007/08 |
225,000 |
1.6 |
||
|
2008/09 |
235,000 |
1.65 |
||
|
2009/10 |
245,000 |
1.75 |
||
|
2010/11 |
255,000 |
1.8 |
||
|
2011/12 |
50,000 |
1.8 |
||
|
2012/13 |
50,000 |
1.5 |
||
|
2013/14 |
50,000 |
1.5 |
||
|
2014/15 |
40,000 |
1.25 |
||
|
2015/16 |
40,000 |
1.25 |
10,000 |
|
|
2016/17 |
40,000 |
1 |
150,000 - 210,000 |
4,000 |
|
2017/18 |
40,000 |
1 |
150,000 - 210,000 |
4,000 |
|
2018/19 |
40,000 |
1.03 |
150,000 - 210,000 |
4,000 |
**See FCA Retirement Outcomes Review interim report, July 2017, p10: ‘Our consumer research found that full withdrawals were partly driven by a general mistrust in pensions that was typically based on perception of the sector rather than personal experience. In particular consumers referred to pension scandals, a perception that their pension money is ‘doing nothing sitting there’, and also belief that pension rules were constantly changing to their detriment.’
