A “highly complex” tax system is catching out an increasing number of people, Quilter has warned.
Figures from HM Revenue & Customs found that more savers were putting money into their personal pensions than ever before prior to the pandemic, with £31.3 billion put aside in 2019 to 2020, up from £27.9 billion in 2018-19. The annual average contribution per person also increased from £3,000 in 2018/19 to £3,300 in 2019/20.
HMRC said there has been a steady increase in the number of people contributing to a personal pension since the introduction of automatic enrolment in 2012/13.
According to the figures, gross pension tax relief in 2019/20 is on track to be £41.3 billion, up from £38.2 billion the previous year.
However, the figures also showed an increasing number of people being caught out by annual allowance and lifetime allowance charges.
A total of 42,350 taxpayers breached the annual allowance limit in 2019/20 as the total value of contributions exceeding the limit reached £950 million – a sharp increase on the £820 million reported in 2018/19.
Figures also revealed that 8,510 lifetime allowance charges were reported by schemes, with a 21% year-on-year increase in the total value of charges to £342 million.
Jon Greer, head of retirement policy at Quilter said: “The good news is that the new figures from HMRC show savers were ploughing more money into their personal pensions than ever before prior to the pandemic. However, what these figures will look like post pandemic is yet to be seen.
“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 spiral.
“The government should be doing everything it can at present to encourage savers to put away money 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 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.”