Data from Fidelity International found that, while the end of the tax year normally sees a rise in pension contributions, pension inflow figures reveal that concerns over an announcement on pension reforms from the chancellor brought this behaviour forward.
Compared to January 2016, total individual Sipp contributions rose 106% in February, with 41% of this increase seen in the last week of the month alone.
Trend brought forward
Maike Currie, investment director for personal investing at Fidelity International, said: “It’s perfectly normal to see a spike in pension contributions as we near the end of the tax year but this year’s pension flows reveal that this trend has been brought forward.
“With the chancellor’s announcement called off for now, it will be interesting to see how consumers react and whether the strong momentum continues.
“While George Osborne’s U-turn has taken away some of the urgency to maximise pension contributions before the budget, this is a timely wake-up call for savers. The chancellor has indicated pension tax-perks are in his sights – this is a postponement and not a cancellation of change.
Changes still on the cards
“People should still look to maximise benefits as, let’s not forget that, from 6 April there are a number of upcoming changes that remain on the cards. First, the lifetime allowance will fall from £1.25m to £1m ($1.4m, €1.3m) meaning a decrease in the maximum amount you can hold in pension savings without facing a massive tax bill.
“Second, if you are a higher-earner receiving over £150,000 a year in salary, taxable benefits and pension contributions, you will be hit by a reduction in your annual allowance. This means that the amount you can contribute to your pension and still enjoy tax relief will reduce from £40,000 until it reaches just £10,000 if your income is £210,000 or higher.
“Finally, the carry-forward clock keeps ticking despite the chancellor’s change of heart. That means that for most people, the ability to take advantage of unused allowance from the 2012/13 tax year expires on 5 April.
“Remember, to use carry forward you would have needed to have had a pension plan open in the year from which you are bringing forward relief. You can also only put into a pension an amount up to how much you have earned in a given tax year,” Currie concluded.
