Pension contributions rise £0.5bn – but government claws back £186m from higher earners
The total amount invested in personal pension funds in 2016-17 (£24.8bn) was higher than both the 2015-16 (£24.3bn) and the previous peak of £20.9bn contributed in 2007-08 ahead of the financial crisis.
The notable increase in the number of contributors is down to the introduction of auto-enrolment in 2012. The report revealed that 25-34 year olds are the group who’ve benefited most from auto-enrolment. London continues to be the biggest beneficiary of auto-enrolment with the number saving since the policy introduction in 2011-12 up 135%. The lowest impact has been in the South East where the upsurge is only 70%.
Chris Knight, CEO of Legal & General Retail Retirement, said:
“With more and more people being enrolled into workplace pensions it’s no surprise that pension contributions have increased. The introduction of auto-enrolment has undoubtedly helped millions of consumers to save for their retirement. However, whilst this is a great initiative, the amount that the government advises we save monthly will only allow consumers to ‘get by’ in retirement, which may not give them the life that they’ve envisaged for their later years.”
The HMRC data also reveals the impact new restrictive legislation has had on higher earners. The changes introduced in 2016-17 caught an extra £382 million in pension contributions, meaning a £150 million boost to the Treasury. 18,930 people were impacted, up from 7,150 in 2015/16.
In the same year the lifetime limit on the value of pension someone could build up fell by £250,000 to £1 million. This change secured a further £36 million for the Treasury.
Nathan Long, senior analyst at Hargreaves Lansdown, said:
“The rules that restrict contributions are fiendishly complex, but seem to have met their target of clawing back some valuable revenue for the Treasury. Few people will shed a tear for higher earners, but these rules heap complexity into the pension system that ends up impacting everyone. The extra funds raised should be a warning ahead of the Budget, as it is a small step to start slicing off a little more from the available allowances.”