Pension savers lose out in £600m ‘tax grab’

Pension savers lost out on £600m last year according to HMRC personal pension statistics released today. The figures show the Treasury gained over £600 million from combined breaches of the annual and lifetime limits on pension savings, according to Hargreaves Lansdown estimates.Savers breaching the annual allowance (the maximum you can pay into a pension in one year) jumped to 37,300 from 23,800 a year before (a 57% increase). Hargreaves Lansdown estimated they have paid £498m in tax charges, up from £335 million the year before (a 48% increase).The statistics revealed 4,550 pension savers were taxed for breaching the lifetime allowance, this was up from 3,350 the year before, representing a 36% increase.They also paid £185m in tax, up from £144m the year before, up 28%. Nathan Long – senior analyst at Hargreaves Lansdown, said: ‘The amount being clawed back from people diligently saving for their future has 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 some high earning workers in the public sector with generous, albeit inflexible pensions. “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.” Tom Selby, senior analyst at AJ Bell, said: “The staggering impact of the Treasury’s pension tax grab have been laid bare by today’s figures. “Twice as many people were clobbered with an annual allowance charge in 2017/18 compared with the previous tax year, with hundreds of millions snatched from the grasp of hard-working savers.“The culprits behind this spike in pension tax are almost certainly the taper, which lowers the annual allowance for high earners, and the money purchase annual allowance (MPAA), which penalises those who take taxable income from their retirement pot.” He added: “We continue to bang the drum for an independent review of the entire pension tax framework, with a focus on simplifying and encouraging more people to save for retirement. “Hopefully once the unholy mess that is Brexit has been resolved the Government can get on with important domestic issues such as this.”Helen Morrissey pension specialist at Royal London, said: “Today’s figures show the total value of contributions reported as exceeding the annual allowance has surged from £578m in 2016/17 to £812m in 2017/18. “This is just the beginning and we will see more and more people being caught out by this overly complex regime as time goes on.”

Pension savers lose out in £600m ‘tax grab’

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