The amount of money collected through taxing individuals that breached the lifetime allowance (LTA) increased by 1,068 per cent between 2010 and 2020, according to analysis of HMRC data by Mazars.

In the 2010/11 tax year, HMRC collected £32m from people breaching the LTA, but this increased to £342m in the 2019/20 tax year.

Mazars noted that the increase in the amount of tax was due to more individuals being caught out by the tax.

The number of people with pension savings over the LTA threshold had risen from 890 in 2010/11 to 8,510 in 2019/20.

On average, £40,188 was paid in LTA breach tax changes by individuals in 2019/20.

Mazars said the rise in the number of people breaching the LTA and the increased average tax charge was fuelled by “continuous cuts” to the maximum amount people were able to save into a pension before breaching the LTA.

The allowance was reduced to £1,055,000 in 2019/20 but has since risen to £1,073,100 for the 2020/21 tax year.

However, the LTA was frozen until April 2026 at the June Budget.

“Thousands of people have been dragged into paying additional tax on their pension savings in the last decade,” said Mazars partner, Ian Pickford.

“With the LTA threshold on ice until 2026, this upward trend won’t slow down, hitting both defined benefit and defined contribution pension savers, especially those with generous pension perks. It’s closer than many people think.

“Freezing the cap is effectively a punishment on saving into a pension, the very thing people are encouraged to do. And the reality is that a £1m pension pot won’t go as far as many believe. Outgoings, like care costs or supporting children or grandchildren, have the potential to swallow up a large chunk of this, even just a short time into later life.

“This is why planning ahead is so crucial. Firstly, to know if you are on track to breach the LTA and secondly, to weigh up the benefits of continuing to contribute to a pension against other ways of saving for later life.

“Increasingly, we are seeing people turn their backs on pensions as a means of income provision in later life, opting to use them as a way to pass down wealth. All the time your money is in a pension, it is growing free of income and CGT and for those lucky enough to have built up other savings, it’s likely a pension will be the last pot to access.”

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