Government gains extra £186 million from pension tax relief changes

Higher earners had the amount they could pay into a pension reduced in 2016/17, which caught an extra £382 million in pension contributions, meaning a £150 million boost to the Treasury.

18,930 were impacted by the change, up from 7,150 in 2015/16.

In the same year, the lifetime allowance fell by £250,000 to £1 million, giving a further £36 million to the Treasury.

Following changes to the annual allowance, the number of people paying a tax charge through their self-assessment return tripled from 5,430 to 16,590 and the amount contributed in excess of annual limits rose from £143m to a massive £517m.

Royal London says this is likely to be both a delayed effect of the cut in the annual allowance from £50,000 to £40,000 and the impact of the first year of the tapered annual allowance down to £10,000, which suggests the tax take from these charges could "increase significantly in the coming years".

Steve Webb, director of policy at Royal London, said: “We are now starting to see the multiple cuts to pension tax relief bite on pension savers. Although relatively small numbers of people are affected, the tax bills are huge. On annual allowance charges alone, the amount of contributions which exceeded the annual limit trebled in a single year up to 2016/17. These impacts will get bigger as the ability to carry forward higher unused allowances from previous years works its way out of the system.

“Regrettably, the Chancellor will be looking at these figures with great interest as they suggest that pension tax relief could be a rich source of additional revenue for a cash-strapped government."

Nathan Long, senior analyst at Hargreaves Lansdown, commented: "The rules that restrict contributions are fiendishly complex, but seem to have met their target of clawing back some valuable revenue for the Treasury. Few people will shed a tear for higher earners, but these rules heap complexity into the pension system that ends up impacting everyone. The extra funds raised should be a warning ahead of the Budget, as it is a small step to start slicing off a little more from the available allowances."