The total amount contributed annually by UK individuals into their pensions has increased by 17% in the last five years, according to analysis of newly released HMRC data by Prudential.
Individual contributions to pensions for the tax year 2014-15 totalled £9.03 billion, an increase of more than £1.3 billion on the £7.71 billion contributed in 2010-11. The figures capture both contributions to personal pensions and voluntary contributions to occupational schemes.
Prudential’s analysis found that the value of total individual pension contributions for 2014-15 is the second highest ever publicly available figure, based on data which stretches back to the 1990-91 tax year.
However, the levels of pension contributions still haven’t recovered to those seen in the year before the financial crisis struck. The £9.03 billion contributed last year is still over £1 billion short of the total for 2007-08, (£10.18 billion).
The same release of HMRC data also suggests that the recent increases in total pension contributions can be attributed in part to the initial success of auto-enrolment in encouraging more workers to save for their retirement. The most recent available figures on total numbers of pension savers for the tax year 2013-14 show that in the first 18 months of auto-enrolment, around one million more people in the UK started to contribute to a pension.
Auto-enrolment started to roll out in October 2012 and immediately began to reverse a trend that had seen the total number of pension savers in the UK fall by 32% from 7.8 million to 5.3 million in the 10 years to the end of the 2011-12 tax year. By April 2014 the figure had recovered to more than 6.4 million.
Stan Russell, a retirement income spokesperson at Prudential, said: “After taking a long time to recover after the shock of the financial crisis, it appears that workers in the UK are starting to catch the pension savings bug again.
“Now, more than ever, it is important for those looking to secure a comfortable retirement to save as much as possible as early as possible into a pension. With fewer people benefiting from final salary pensions and faced with volatile financial markets, especially following the result of the EU referendum, saving into a personal or workplace pension is something I would encourage all workers to consider strongly.
“The ongoing changes to the rules governing pensions are undoubtedly helping to fuel their growth in popularity – while auto-enrolment is encouraging many first time savers, the flexibility brought about by pension freedoms has encouraged existing savers to increase the amounts they save. The new pensions landscape provides increased choice and underlines the value of professional financial advice to many people looking to secure their financial future.”
As previously highlighted by Prudential’s research, many new automatically-enrolled pension savers contribute relatively small amounts of money and are basic rate tax payers. This is reflected in the HMRC data showing that while annual totals of individual pension contributions have increased since 2010-11, the amount of tax relief on contributions paid out by HMRC in the same period has actually fallen from £24 billion to £21.2 billion in 2014-15.