The government’s tax take from the annual allowance on pension contributions has more than tripled in the last year, reports Money Marketing.
Figures released by HM Revenue and Customs show that for the 2015/16 tax year, total receipts from annual allowance breaches came in at £179m. This has now jumped to £561m in 2016/17, the year the tapered annual allowance for high earners came into effect.
While the government does not separate how much of the tax revenue came from high earners on a tapered threshold compared to the standard annual allowance, it suggests the taper rules brought in from April 2016 may have had a significant impact.
Canada Life pension technical director Andrew Tully notes that the statistics will not have taken the reduction in the money purchase annual allowance to £4,000 in April 2017 into account yet, so annual allowance tax takes will likely be even higher next year.
“With a relatively low cap on contributions to pensions of £40,000 a year, and less for higher earners, the government should consider scrapping the lifetime allowance (something we at Mantles fully agree with). This would massively simplify pensions for schemes, providers and, most importantly, customers, by removing a huge amount of complexity around areas such as benefit crystallisation events.”
The lifetime allowance tax take has also jumped from £66m to £102m in 2016/17 as the limit decreased from £1.25m to £1m.
Nucleus product technical manager Rachel Vahey says the rise “demonstrates in vivid terms how many more people are ‘hitting’ the lifetime allowance as it moves from being a ‘fat cat’ tax to one that affects thousands of ordinary pension savers.”
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