The number of pension savers falling foul of the annual allowance has soared past 30,000, with HM Revenue & Customs (HMRC) statistics revealing a significant jump in breaches during the 2024/25 tax year.
Newly released private pension statistics show that 30,440 people exceeded their personalised allowance through self-assessment, marking a 22 per cent increase from the 24,950 who breached the threshold in 2023/24. The total value of contributions above the allowance also rose by 33 per cent, according to the data.
David Little, partner in Financial Planning at wealth management firm Evelyn Partners, described the rises as "quite striking," noting that both the number of charges and the value of excess contributions have increased substantially year-on-year.
Annual allowance explained: The £60,000 limit
The pensions annual allowance is the maximum amount of tax-free money you can contribute to your pensions each tax year. The full annual allowance is currently £60,000, a level that has remained unchanged across both the 2023/24 and 2024/25 tax years.
Little pointed out that the allowance was raised from £40,000 to £60,000 by then Chancellor Jeremy Hunt in April 2023 following his Spring Budget. This increase might have been expected to reduce the number of breaches in subsequent years, as savers gained more leeway for large annual pension contributions than they had enjoyed for nearly a decade.
However, the opposite has occurred. Little said: "These are quite striking increases of 22 per cent in the number of individuals reporting AA breaches and 33 per cent in the total value of contributions above the AA."
The taper trap: How higher earners lose their allowance
The taper remains a particular trap because the headline £60,000 allowance can give higher earners a false sense of security. Where threshold income exceeds £200,000 and adjusted income exceeds £260,000, the allowance is reduced by £1 for every £2 of additional adjusted income, potentially falling to just £10,000.
This means that high earners who assume they can contribute the full £60,000 may inadvertently breach their personalised limit, triggering a tax charge. The HMRC figures suggest that many are falling into this trap, despite the increased headline allowance.
What savers should do if they face a charge
Little advised that where a charge on an annual allowance breach is unavoidable, savers should establish whether Scheme Pays is available to allow the charge to be paid from their pension scheme. However, he cautioned against automatically stopping pension saving simply to avoid a tax charge.
"Giving up valuable employer contributions, tax free growth inside the pension fund or defined-benefit accrual could leave them materially worse off in the long run," Little added. "Sometimes paying the tax charge is the best option."
The data underscores the growing complexity of pension tax rules and the importance of seeking professional financial advice, particularly for those with incomes near the taper thresholds.
