Lifetime allowance breaches cost savers £185m in 2017/18
More than 4,500 pension scheme members breached the lifetime allowance in the 2017/18 tax year, an increase of 36% from the year before, according to HM Revenue and Customs (HMRC).
In data published today (26 September), the tax office revealed these savers had paid around £185m in charges as a result of the breach, up 29% from 2016/17.
Meanwhile, a further 37,300 members exceeded their annual allowance, with those who were required to report this through a self-assessment return revealing £812m in total contributions over the allowance.
HMRC's figures do not breakdown how many of these members were affected by the tapered annual allowance, which reduces an individual's £40,000 threshold by £1 for every £2 earned over £150,000. Nor does it reveal how many were hit by the money purchase annual allowance, which is set at £4,000 and applies where a saver accesses their pot but then continues to save into it.
Hargreaves Lansdown estimated the tax bill across both allowances could be even higher than that reported by HMRC, hitting around £600m. This assumes that those who breached the annual allowance were 40%-rate taxpayers, resulting in a tax charge of £498m.
Senior analyst Nathan Long said: "The amount being clawed back from people diligently saving for their future has ballooned in the past year.
"The government has 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 ongoing turmoil for some high-earning workers in the public sector with generous, albeit inflexible, pensions."
The tapered allowance has proven to be a significant problem for many public sector workers, particularly senior clinicians in the NHS who have had to cease membership or reduce working hours in order to avoid sometimes exorbitant tax charges.
The government is consulting on changes to the NHS Pension Scheme to allow for more flexible savings, but the problem also extends to some scheme members in the armed forces.
Canada Life technical director Andrew Tully said the figures painted a "stark picture of how the lifetime allowance has impacted savers".
He added: "The lifetime allowance is an arbitrary tax which penalises individuals who have enjoyed good returns on their investments".
He noted the complexity for savers who are faced with various tax allowances, and may be "unintentionally caught" by a change in tax thresholds.
Today's figures from HMRC also revealed £28.2bn of contributions to personal pensions had been made in the 2017/18 tax year, with members benefitting from £37.2bn of tax relief. However, tax paid on private pensions also grew by 2.8% to £18.3bn.
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