The majority of pension savers (64%) feel the Annual Allowance, the amount they can save into their pensions tax-free each year, should rise in line with inflation. This view was most consistently held by those over the age of 55 (66%), who are at, or close to, retirement age.
Adjustments to both the Annual Allowance (currently £40,000 or up to your maximum earnings) and the Lifetime Allowance (£1,073,000) have been rumoured, as part of a drive to stop professionals from retiring earlier and to encourage those over 50 to return to work.
When asked about increases to pension allowances by PensionBee, over a third of respondents (37% and 36% respectively) expressed a desire to see the current Lifetime Allowance unfrozen for the 2023/2024 tax year, and the Money Purchase Allowance increased from £4,000.
Other ‘pension wishes’ for this week include the implementation of a universal rate of pension tax relief (of 25-30%) to be applied to all pension savings, regardless of a person’s tax bracket. Over half of pension savers (53%) expressed a desire for a less complex pension tax system. Recent analysis from PensionBee revealed the UK’s highest earners left a whopping £1.3 billion of unclaimed pension tax relief to the taxman between 2016/17 and 2020/21.
Following the announcement of the government’s intention to reduce the age of Auto-Enrolment from 22 to 18, the survey responses suggest that further measures to extend its reach to more savers could be popular. Almost half of pension savers (43%) expressed a desire to see the current earning threshold required to trigger Auto-Enrolment (currently £10,000) lowered to include more part-time or lower-paid workers. Government modelling has estimated that reducing the earnings trigger to £6,396 would bring an additional 203,000 people into workplace savings.
Meanwhile, the vast majority of pension savers (65%) reported that they would like to see an increase in minimum contributions amounts under Auto-Enrolment from a combined 8% to 10%, covered in the Chancellor’s Statement. Support for this adjustment is split almost equally between those who feel it should be implemented to “encourage saving for retirement” (32%) and those who feel it should occur “eventually but not now due to the cost of living crisis” (33%).
If the Chancellor announces that an increase in the State Pension age to 68 is going to happen sooner than already planned, this move could effectively force more people to work for longer. Previous PensionBee research found almost half of British working adults (48%) - equivalent to around 15 million people, think they wouldn’t be able to retire before the State Pension entitlement age, if it rises to 68.
Becky O’Connor, Director of Public Affairs at PensionBee, commented: “If the Government is going to increase the State Pension age to 68 sooner than planned as seems likely, this could effectively force people to work for longer. But it would be those people who haven’t managed to build up enough private savings throughout working life who would be most punished by this move.
There are more reasons to retire early than wanting to head to the golf course. In its efforts to get older people back to work, it’s important the Government recognises that not everyone can just carry on working. Many people are forced to retire sooner through ill health or the need to care for relatives. They often end up poorer as a result.
The only way people stand a chance of retiring with an adequate income before the State Pension age or even after, is through having sufficient personal savings. So it’s absolutely vital that we see measures to further encourage people to boost their private pension provision through increases to the current restrictions on how much people can pay in before they face tax charges, but also by looking at the generosity of minimum contributions and changes to tax relief to benefit lower income earners. We can see from our research that increasing allowances would be widely supported.
These measures are less about encouraging relatively well off older early retirees back to work, as it’s debatable whether they would have that effect anyway. Rather, they would enable more workers, particularly those on lower incomes, to build up big enough pots to be able to consider retiring at all.”
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