HMRC published its annual update to personal and stakeholder pensions statistics at the end of last week. The document included an update on the impact of the lifetime and annual allowance tax charges.
Moreover, HMRC also shared the most recent data for flexible pension payments under the pension freedoms rules.
Scrutinising the data for City A.M., Andrew Tully, technical director at Canada Life, pointed out this morning that these figures show a significant increase of 21 per cent in the lifetime allowance charge for the latest reported tax year, with 8,500 people hit with an extra tax.
“I can only see this charge hitting more people as those using drawdown approach age 75 and face the second check, which will be exacerbated by the fact the allowance has been frozen for the next five years,” Tully said.
Tully thinks that the people affected by the annual allowance will likely fall from this peak, as the effect of increasing the earnings thresholds for the tapered annual allowance came into force on 6 April 2020 and so isn’t reflected in these numbers.
“But the very fact we have annual, lifetime, money purchase and tapered allowances just shows how complicated the pension tax system has become,” he said.
With regards to flexible pension payments, Tully remarked that the pandemic has done nothing to quell the appetite for people to use their pensions like bank accounts.
“£45bn has been withdrawn flexibly from pensions since 2015 with the trend on an upward trajectory. The genie is well and truly out of the bottle,” he concluded.