Nearly 80% of savers choose to pay a 25% LTA charge, preferring to leave the money in the pension scheme
Pension savers have been hit hard by tax charges according to the latest government figures released today.
The amount of tax charged for people breaching the lifetime allowance (LTA) and annual allowance (AA) limits rose to high levels for the tax year 2018/19.
The figures for the LTA charges were £283m, a 6% rise from £269m in 2017 to 2018 representing the single biggest amount clawed back in one year since the lifetime allowance was introduced in 2006.
Also the total value of AA charges reported by schemes in 2018 to 2019 was £209m, a 71% rise from £122m in 2017 to 2018.
The total value of contributions reported as exceeding the AA was £817m in 2018 to 2019, declining from £912m in 2017 to 2018 and £584m in 2016 to 2017.
The data shows that 34,220 taxpayers reported pension contributions exceeding their AA through self-assessment in 2018 to 2019. They paid an average charge of £23,874.
Nearly 80% of savers choose to pay a 25% LTA charge, preferring to leave the money in the pension scheme, rather than withdraw as a lump sum which would have incurred a 55% charge.
Quilter pensions expert Ian Browne said this new data will cause concern for pension savers throughout the country who are being taxed for their “good behaviour”.
He said: This data adds to the argument that we need to take a very careful look at the current pension tax system for the public sector and see whether it is still fit for purpose. While some welcome tweaks to this notoriously complicated area have been made over the past few years they amount to a sticking plaster and a total rethink is necessary.
Canada Life technical Andrew Tully added: The LTA has since been frozen for the next five years, meaning more and more people will get caught by this relatively arbitrary figure, with the Treasury expecting to raise an additional £1bn in tax.