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Pension annual allowance rise going unused by two-thirds of key group, survey finds

High net worth individuals (HNWIs) are not making the most of the increase to the pensions’ annual allowance after its introduction a year ago, new research reveals.

New data from the Saltus Wealth Index Report shows that only a third of HNWIs are taking advantage of the increase from £40,000 to £60,000 in the amount you save into a pension pot each year before paying tax that was introduced in April last year.

The research, a survey of 2,000 people with investable assets of over £250,000, indicates that the majority of HNWIs (56 percent) are not utilising any of the extra £20,000 allowance available to them.

Nearly a third of HNWIs (27 percent) are contributing above the previous annual allowance – adding between £40,000 and £50,000 into their pension this year – yet only eight percent are contributing up to the maximum £60,000.

According to the research, the average pension contribution for HNWIs is £35,400, up only £1,600 from April 2023 where average contributions (prior to increase in annual allowance) were £33,800 allowance) were £33,800.

The research shows the average pension pot of HNWIs is £483,571 – more than £50,000 short of the £535,979 pot that would be necessary to provide their desired level of income.

For those nearing retirement (respondents aged 55+) the ‘shortfall’ is even larger, at more than £115,000.

The research found that cost of living pressures are having an impact, with 13 percent of respondents reducing pension contributions as a direct result of rising costs.

Only 10 percent of those with adult children (and 15 percent of those with adult grandchildren) have reduced their own pension contributions specifically to fund financial support for younger generations.

Gianpaolo Mantini, chartered financial planner at Saltus, said: “When the increase to the pensions annual allowance contribution came into effect this time last year, it is something we would have expected to see most HNWIs making the most of.

“This is because, firstly, most do not think their current pension savings are sufficient for a ‘comfortable retirement’ and, secondly, because pensions are one of the most tax efficient ways for high earners to save.

“However, our report shows that despite HNWIs thinking their pension pots are short of where they should be – and 42 percent said they planned to invest the full £60,000 – they are not utilising the new allowance to boost their retirement savings. Just 11 percent of those aged over 55 are investing more than £40,000.”

“As a relatively new change, I suspect the underutilisation suggested by our research could be due to a lack of awareness about the increased allowance, and if people don’t know that it’s available, they may be sticking to the same approach for their pension that they have used for years.

“More broadly, it could be linked to lower levels of disposable incomes following mortgage interest rates and other inflationary pressures. Business owners particularly have been conscious of increased wage demand and pressures on their profitability and so are retaining additional cash to weather the current economic climate – and subsequently not topping up their pensions.

“Looking at the next 12 months, there are also concerns about which elements of the recent pension changes Labour may look to reverse if they win the next election.”


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