A great way to judge the changes to the savings system is to look at how they affect tax receipts to HM Revenue & Customs.
When you do so, you often find that the things the Government talks about most are not the things which impact ordinary people the most. This is certainly true at Budget time - which comes around again on 29 October - when a simple table of forecasted tax payments tells you more about the significance of a policy than an hour of the Chancellor talking at the dispatch box.
There was another example of it this week when HMRC published, for the first time, the amounts paid by those who exceed the Lifetime Allowance and Annual Allowance on pensions. These are the limits for saving into a pension with tax relief. The limits have been made steadily less generous over the years, and that shows up when you look at the tax they now generate for the Government.
The total tax take from those exceeding the lifetime allowance tax has increased from £5m in 2006/07 to £102m in 2016/17. Much of this increase in tax has come in 2012, when the Lifetime Allowance began to shrink from its level then of £1.8m. It currently sits at £1.03m.
Meanwhile the tax raised from those exceeding the annual allowance has increased from £2m in 2006/07 to £561m in 2016/17.
A more recent development may accelerate this tax grab even further. The Annual Allowance ‘taper’ means that the current annual limit for contributions - £40,000 - shrinks for those earning high salaries.
Anyone whose annual 'adjusted' income is more than £150,000, and annual 'threshold' income is more than £110,000, will see their annual allowance shrink. Threshold income includes your income from all sources minus pension contributions you’ve made, while adjusted income is all your taxable income plus any pension contributions made to a workplace pension by you and your employer.
For every £2 that your adjusted income exceeds £150,000, your annual allowance reduces by £1. The maximum reduction to the annual allowance is £30,000, which means it reduces to £10,000 when your adjusted income hits £210,000.
HMRC’s figures indicated the introduction of the tapered annual allowance in April 2016 increased the tax take from £179m in 2015/16 to £561m in the following year.
That’s quite a lot of extra tax for a change that is seldom spoken of, or really understood by ordinary people. That lack of understanding shows up in the fact that the number of people falling foul of the annual allowance more than doubled, from 7,150 in 2015-15 to 18,930 in 18,930.
Are you at risk of making the same mistake? One way to avoid a problem is to employ the services of an independent financial adviser, who will be able to identify the risk and potentially take action to mitigate it.
Those who accidentally breach the Annual Allowance - perhaps because pension contributions set before the taper was introduced now breach a lower limit - may be able to use ‘carry forward’ to help them escape a charge. This is the rule that allows unused allowances from the preceding three years to be used to make one-off, higher annual contributions.
There’s more on that here.
The Government’s Pension Wise service offers free, impartial guidance to help you understand your options at retirement. You can access the guidance online at www.pensionwise.gov.uk or over the telephone on 0800 138 3944.
Fidelity’s Retirement Service also has a team of specialists who can provide you with free guidance to help you with your decisions. They can also provide advice and help you select products though this will have a charge.
The value of investments and the income from them can go down as well as up, so you may get back less than you invest. Tax treatment depends on individual circumstances and all tax rules may change in the future. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.
Combining your pensions into a Self-Invested Personal Pension (SIPP) can make it easier to manage your savings - and it could be cheaper, with lower fees than you’re currently paying.