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High net worth exceed pension annual allowance but too few self-employed saving

Individuals need better advice and/or to pay closer attention to the pension contributions they make to avoid paying over the amount at which they can get tax relief on their contributions.

The number of people paying over the £40,000 annual allowance for pension contributions rose from 1,720 in 2015/16 to 2,340 in 2016/17 under pension schemes accounting for £44 m (up from 36m) in annual allowance charges, according to the latest Government statistics.

The number of individuals reporting pension contributions exceeding their annual allowance through self-assessment rose from 5,430 to 16,590 (2015/16 and 2016/17 respectively) self-employed people and the total value of pension contributions exceeding the annual allowance up from £143m to £517m.

The annual allowance dropped to £40,000 (from £50,000) in the tax year 2014/15 and yet savers are still investing over this.

Concerns continue over the number and amount of self-employed people saving into pensions, not having the advantage of auto enrolment that encourages employed people to save. The number of employed people saving into a personal pension rose from 8.5 m paying in £2570 on average in 2015/16 to 9.8m paying in £2,310 in 2016/17. However, the number of self-employed saving in 2015/16 was 350,000 paying in an average of £5,310. While the number saving rose to 360,000 in 2016/17 the average amount being saved dropped to £4,490.

Nathan Long, senior analyst at Hargreaves Lansdown said: ‘The last decade has seen a hollowing out of the self-employed saving for retirement. While the number of people working for themselves continues to rise, it’s a smaller number of wealthier self-employed who remain steadfastly saving through a pension.

"Younger folk have been the big beneficiaries of auto-enrolment, evident in the surge in people aged under 35 who are now saving for their life after work. London has also seen a big jump in pension savers, as the automatic joining of employees to their company pension has overridden their worries about the huge cost of living in the capital.

"The plight of the self-employed, highlighted in this latest data is a further reminder that too many people are still missing out on saving for retirement despite the success of the auto-enrolment regime."

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