The data shows that :
- 26,550 people reported breaching the annual allowance, up more than 11,000% in a decade
- Close to £1bn was paid in annual allowance charges
- more than 10,000 people used the ‘scheme pays’ option
Quilter head of retirement policy, Jon Greer:
“Breaching the annual allowance used to be something that only the very highest earners had to worry about. When company executives on significant salaries face checks and balances on the amount they can save with tax relief that is one thing, and those people will already be in a position where their own accountants and advisers to help navigate the complexity.
“But just ten years after a meagre 230 people faced an annual allowance tax charge in 07/08, it is now common place for ordinary workers to be confronted with the complexity of the pension annual allowance and the associated savings dilemma. In the 17/18 tax year more than twenty six and a half thousand people reported breaching the annual allowance tax charge, a staggering 11,443% increase on the same figure ten years ago.
“The figures also show 10,750 people opted for a ‘scheme pays’ option to deal with the tax charge. In total close to £1bn was paid in annual allowance charges, most of which was paid up front by the individuals affected, with £173m paid under the scheme pays option.
“This dramatic shift means that it is now relatively normal for people to face limits on the amount they can save with tax relief and penalties for exceeding that. It places real pressure on people trying to plan their finances and discourages individuals from setting money aside for the future. It is especially problematic for those with variable earnings or bonuses, who may save at a rate through the year which they expect to be under the annual allowance, but then find their plans are thrown off course as their earnings change.
“And of course we know that in the public sector in particular, the introduction of the ill-conceived annual allowance taper has had a disastrous impact. Thousands of doctors, civil servants, judges, armed forces personnel and other public sector workers have faced tax penalties for breaching the annual allowance because of the way their schemes and contributions rates are structured. The result is that employers are having to implement complex workaround, and government departments from the NHS to the MoD are having to devise workaround to alleviate staffing pressures as senior employees consider reducing hours or retiring to avoid the punitive tax charge.
“If you are in a position where this might affect you it is essential to take advice to ensure you use your tax allowances effectively. The system becomes extremely complex at this point and almost impossible to navigate without expert help.”