Rising Private Pension Contributions Highlight Gaps in State Provision

Savers Responding to State Pension Shortfall

Tomm Adams, Partner, said:

HMRC has published its annual summary of statistic covering contributions to and payments from private pensions. The report shows that individual contributions to plans are up by 13% year on year, significantly higher than wage inflation, which suggests the nation’s savers are taking need to save beyond the inadequate state pension provision seriously.

The number of members making contributions has remained reasonably stable, meaning population growth is not driving this increase, which indicates a growing understanding that the state’s provision for retirement is woefully inadequate. The state pension only covers around 20% of the average earner’s income into retirement, one of the poorest provisions in the developed world.

Fiscal Drag Impacting Tax Reliefs

At the same time, tax and National Insurance Contribution (NIC) relief is only up by 8%, which is indicative of frozen tax allowances both in pensions and more widely across the UK tax regime, and evidence of ‘fiscal drag’ or stealth tax rises the UK has been subject to by successive governments.

This slower growth in relief compared to contributions highlights how frozen thresholds are effectively reducing the benefits of saving for retirement.

Policy Risks Ahead

Tomm concluded:

However, the ability to save for the future is a question of affordability, and while the Chancellor is investing significant resources in researching value for money in private pensions, she mustn’t take away tax reliefs in her October Budget. This would be counterproductive; disincentivising saving for later life will only put pressure on the future generation’s wallets.

Key Takeaway for Individuals and Businesses

The sharp rise in contributions reflects a growing public recognition that the state pension alone will not provide a comfortable retirement. For individuals, reviewing pension strategies early and maximising available reliefs remains vital. For employers, supporting workplace pension engagement can help staff take proactive steps to secure their financial future and could also be a valuable recruitment and retention tool.

Would you like to know more?

If you have any questions about the above, please get it touch with your usual Blick Rothenberg contact or Tomm using the form below.