What do HMRC stats say about people accessing their pensions?

  • Describe some of the changes in how people pay into and access their pensions
  • Explain how tax charges are being triggered
  • Identify the impact of rising living costs on pension withdrawal
What do HMRC stats say about people accessing their pensions?

In September the Treasury issued the latest instalment of its private pension statistics, covering the period up to and including tax year 2020-21.

This update gives the most recent picture of private pension saving in the UK as we emerge from the pandemic and look to the challenges ahead, in particular the ongoing challenge of rapidly rising inflation. 

The figures also provide an insight into the implications of the UK’s pensions tax rules. As the cost of living crisis begins to pinch in the UK, it also shines a light on how people are reacting to the new economic conditions.

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Exploring the figures and examining what they show us about consumer trends and patterns of behaviour is a helpful tool to help us obtain an overview of the shape of the retirement income market and understand how people are using their pension assets. 

This article looks at four main areas from the publication:

  1. How much people are contributing and to where. 
  2. The cost of pensions tax relief.
  3. The charges raised by the annual allowances and lifetime allowance. 
  4. How many people are accessing their funds through pension flexibility.

How much are people contributing and to where?

Let’s start by looking at the contributions made to personal pensions. This category also includes retirement annuity contracts, if you remember those, a forerunner of personal pensions.

Over the past five years there has been a steady increase in the individual contributions made, which is good news. In the 2020-21 tax year people paid £11.7bn into their personal pensions, an increase of 10.4 per cent on the previous year. 

It is worth pointing out that £2bn was contributed by the self-employed, a rise of 17.6 per cent on the previous year. To see this level of increase is heartening. However, there are still concerns that self-employed pension saving is not at an adequate level, especially given the self-employed population is growing in size. 

Efforts are being made to address this. The DWP is currently conducting tests to see if nudges can make a difference to the level of self-employed saving. The results of these trials are due to be published later this year.

There are those, though, who want the DWP and the Treasury to go further and develop an auto-enrolment solution.

The statistics also explore what types of personal pensions these contributions are being directed in to. This includes both employer-sponsored schemes and ‘individual’ pensions.

Although the number of members contributing to ‘individual’ pensions has dipped only slightly from 2019-20 and 2020-21, the workplace pensions data paints a different picture.

Members contributing have fallen steeply from 5.61mn down to 3.18mn. The most probable explanation is the effect of Covid on working and pension saving. And the hope is that the data for the next few years will show an increase in the number of members contributing.

The cost of tax relief

The cost of tax relief and whether it is encouraging adequate pension saving is a perennial area of discussion.

Interestingly though the figures are all estimates, the authors of the data release only show the figures for the two most recent tax years – 2019-20 and 2020-21. Improvements in methodology have, apparently, made the previous years’ figures unusable.