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The number of scheme members contributing dropped in 2022-23 from a year earlier, while the average amount saved in a private pension went up by about £200 to £1,900 over the same period, HM Revenue & Customs has said. Figures on pensions tax relief have also been published, amid speculation the Treasury could be looking at flat-rate relief.
The update by HMRC, published on Wednesday, shows the number of scheme members who made a contribution rose from 6.8m to 7.4m before falling back to the same level in 2022-23.
The number of members and average individual contributions made to personal pensions (2013-14 to 2022-23)
Source: HMRC (Note: the cliff edge in 2020 arises from a change in methodology.) In 2022-23, members made £12.8bn in individual contributions to personal pensions, up from £12.7bn a year earlier. Self-employed people contributed £2.3bn, remaining stable on the previous year.
Helen Morrissey, head of retirement analysis at investment provider Hargreaves Lansdown, argued that the data “lays bare the tough financial challenges facing people in the depths of the cost-of-living crisis”, with fewer people contributing.
Figures published on the same day by the Department for Work and Pensions shows the participation rate remained stable in 2023 for eligible employees – who make up the bulk of all employees – but have continued to dip slightly among ineligible employees. The opt-out rate for new savers is around 8-10%, having risen to that level around 2019-20.
The workplace pension participation rate staying at 88% in 2023 is "encouraging", said Gail Izat, managing director for workplace pensions at provider Standard Life.
However, she called on the new government to improve adequacy: "We still have an under-saving issue in the UK and more needs to be done to help people secure a decent standard of living in retirement."
Izat pointed to the need for regulations to implement the extension of auto-enrolment passed last year and the announced pensions review.
"We hope the new government will move quickly to progress this legislation. Longer-term, the single biggest lever we can pull to improve retirement outcomes is to raise minimum contributions and we hope action on this will come out of the pensions review.”
How much tax relief is given on pensions?
On tax relief, HMRC estimates that 56% was given on contributions for higher rate taxpayers – who made up 11% of taxpayers in 2022-23 – and 7% was related to additional rate payers.
The bulk of tax relief was on employer contributions, which tend to be higher in defined benefit schemes, including public sector schemes. Another £2.8bn is relief on deficit reduction contributions.
Estimated proportion of income tax relief on pension contributions and investment income (2022-23, £bn)
Source: HMRC
Morrissey said: “With rumours circulating that the chancellor may be mulling changes to the tax relief system, this demonstrates that there are real savings to be had. The fact that so much of the benefit of tax relief is enjoyed by higher earners could add fuel to the fire of speculation that the government might consider more structural changes."
LTA brought in £516m in 2022-23
The update issued on Wednesday also highlights how much the Treasury will be forfeiting by not reinstating the lifetime allowance as originally intended. It took £516m in charges in 2022-23, up from £501m the year before.
Another charge is however rapidly increasing, as HMRC found the number of annual allowance charges reported went up a staggering 151% between 2020-21 and 2021-22, while the value of annual allowance tax charges increased by 52%. The rate of increase has slowed down since, with the value of charges up 6% in the latest year covered. Number and value of AA charges reported through Accounting for Tax (2012-13 to 2022-23)
