The total amount of income tax saved on UK personal pensions climbed by 27 per cent to £2.8bn in the 2019/20 tax year, according to analysis from Salisbury House Wealth.

Using data from the Office for National Statistics, the firm showed that the amount of income tax saved was higher than at any point in the last five years, with just £1.6bn having been saved during 2014/15.

The firm highlighted several factors behind the increase, stating that people are increasingly investing more into their pensions to reduce their tax burden due to a gradual reduction in tax benefits granted to other investments, such as enterprise investment scheme and venture capital trust investments.

Additionally, Salisbury speculated that savers were increasing payments ahead of possible changes that could target pension tax relief for higher earners as the Treasury seeks to rebalance the books after providing various forms of financial assistance during the Covid-19 pandemic.

Finally, the firm said the increase had been driven by reductions in the personal allowance for individuals earning over £100,000, leading high earners to hike pension contributions in order to curtail their post-pension contribution income at £100,000 or less.

Salisbury House Wealth managing director, Tim Holmes, said: “Pensions are the bedrock of retirement planning and savers should take full advantage of all the tax-free pensions allowances whilst they can.”

“The Chancellor is currently looking at ways to cover the enormous Covid-19 debt bill that is growing by the day and there is the concern that cutting the pension allowance could be one solution. The government should act with caution, cuts to the allowance could lead to people not saving enough for their retirement, which would cause significant problems in the future.”

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