The number of people who breached their pension annual allowance rose sharply last year, despite the standard allowance having been increased to £60,000 from £40,000 in 2023.
HM Revenue & Customs figures showed that 30,440 individuals reported contributions exceeding their personalised annual allowance through self-assessment in 2024/25, up 22% from 24,950 people in 2023/24.
The total value of contributions reported above the allowance also increased by a sizeable 33%, rising from £505m to £672m over the same period.
In the UK the annual allowance is the maximum amount that can generally be contributed to your pensions each tax year while benefiting from tax relief. It was increased from £40,000 to £60,000 in April 2023, meaning both tax years covered by the latest comparison had the higher standard limit.
David Little, partner in financial planning at wealth manager Evelyn Partners, said the rise was “quite striking”, given the additional leeway provided by the higher allowance.
“What is slightly surprising about the figures is that the annual allowance was raised from £40,000 to £60,000 by then chancellor Jeremy Hunt in April 2023,” he said.
“That, you might have expected, would lead to a fall in breaches in the subsequent years as people had more leeway to make large annual pension contributions than they had enjoyed for nearly 10 years.”
He said there are many possible causes, but one plausible trigger is more earners being surprised by the tapered annual allowance.
“[This is] plausible because this was a period of elevated inflation when high earners could easily have lost track of the impact on pension contributions of increasing salaries and bonuses,” he said.
“Also, many annual allowance (AA) breaches occur within defined benefit schemes where it is harder for employees to keep track of how their pension is tested against the AA, and generous public sector pay deals during this period could have contributed.”
