Pension Membership, Contributions and Tax Relief

The timing of these statistics may prove important as the Government is looking again closely at its finances given the current economic uncertainty and the developing position on Brexit.  

Tax received by the government on pensions in payment in 2015/16 was £13.4 billion; the highest level since these statistics began, and reflecting the general year-on-year increase seen since 2009/10. - HM Revenue & Customs Personal Pension Statistics

Occupational scheme membership on the rise

The Office for National Statistics has published its findings from the Occupational Pension Schemes Survey. The schemes surveyed only include trust-based occupational schemes from the private sector and schemes from the public sector (but HMRC covers personal pensions – see below).

The headline statistics include:

  • Increase in total membership from 33.5 million in 2015 to 39.2 million in 2016

  • The total active membership in 2016 was 13.5 million (7.7 million in the private sector)

  • Increase in active private sector DC membership from 3.9 million in 2015 to 6.4 million in 2016

  • In the private sector the average total contribution rate in a DC scheme was 4.2% (split 1.0% employee and 3.2% employer). The employee rate in 2016 dropped from 1.5% in 2015.

The increase in total membership is expected to increase again in 2017 with NEST announcing that 1.6 million new members joined the scheme in the financial year ending 2017, bringing their total membership to 4.5 million.

Whilst these results are no doubt largely in response to an increasing number of employers now being subject to the automatic enrolment regime there are also several other social and economic factors to consider such as employment, disposable income and attitudes to retirement saving.

HMRC Statistics show effects on contributions and tax relief

HM Revenue & Customs produced on 29 September their latest statistics showing the growth of personal pension scheme membership and indicating the cost of pension saving through tax relief to HM Treasury. 

This analysis is up to the 2015/16 tax year (as figures on the 2016/17 tax year must await the completion of the annual self-assessment process for that tax year).

Some key facts include:

  • The number of individuals contributing to a personal pension has increased to 9 million in 2015/16. This is the highest level since these statistics began; higher than the 7.9 million seen in 2014/15. There are currently 3.7 million more individuals contributing to personal pensions than a prevous low of 5.3 million in 2011/12 – another indication of the effect of automatic enrolment.

  • £24.3 billion was contributed to personal pensions in the 2015/16 tax year, higher than both the £20.3 billion in 2014/15, and the previous peak of £20.9 billion contributed in 2007/08 ahead of the financial crisis and downturn in the UK economy. This may be driven by the continuing closure of older small occupational pension schemes with group personal pensions being set up instead.

  • Annual average contributions to personal pensions per individual grew between 2006/07 and 2011/12 (peaking at £3,690 per individual), before falling to £2,540 per individual in 2014/15. Annual average contributions per individual increased to £2,690 in the most recent year

  • The proportion of personal pension payments contributed by employers has been rising since 1990/91 from around 9% in the early 1990’s to 59% in 2015/16. This reflects both the growth of group personal pensions and the roll-out of automatic enrolment.

  • Contributions by the under 24 and 25-34 age groups have remained strong arguably because of automatic enrolment. This group now make up around 35% of contributors in 2015/16, an increase from around 20% in 2012/13.

Tax relief costs

  • Gross pension tax relief in 2015/16 is projected to be £38.2 billion, up from £34.9 billion in 2014/15. Again this is expected to be partly the result of the introduction of automatic enrolment, which has increased the number of individuals saving and thus the total amount saved into workplace pensions in recent years. Reductions in the annual and lifetime pensions tax allowances were expected to be the main cause of the flattening cost of pensions tax relief between the 2010/11 and 2014/15 tax years. Adjusting for inflation the figures show a flattening of the tax relief cost over the last decade.

  • Income tax relief in respect of employers contributions to occupational schemes increased in 2015/16 to £18.5 billion, remaining the largest element of tax relief. However, this is still lower than the 2010/11 peak of £19 billion and a significant proportion of this may reflect deficit-reduction contributions rather than the financing of new pension accrual.

  • Contributions to personal pension and RACs by the self-employed were at £700 million, which is significantly down on the 2007/08 peak of £1,300 million.

  • Contributions to occupational schemes (employee and employer) account for 60% of the total relief; this has fallen steadily from 65% in 2010/11 and almost 70% in 2005/06. Contributions to personal pensions by employers and employees account for about 18% of the total relief and contributions by the self employed a further 2%. The remainder of the cost of relief is relief on investment income.

  • Tax received by the government on pensions in payment in 2015/16 was £13.4 billion; the highest level since these statistics began, and reflecting the general year-on-year increase seen since 2009/10.

For this purpose the cost of the tax relief is calculated as the tax that would be paid on contributions to registered pension schemes presuming they were not registered and the payments were subject to the normal tax rules applying to individuals' remuneration. It was recognised in the notes that the estimates do not represent the yield from withdrawing tax relief as there would be significant changes in taxpayers' behaviour.   In addition, the point is made in the explanatory notes on the tax relief figures that they were based on HMRC administrative data and information compiled from a variety of sources by the Office for National Statistics. The notes add that “Costs are subject to large revisions and have a particularly wide margin of error.

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