New figures from HMRC show 30,440 people reported breaching their pension annual allowance during the 2024/25 tax year, up from 24,950 a year earlier – a jump of 22%.
The total amount contributed above the limit also soared from £505 million to £672 million, an increase of 33% in just 12 months.
The figures are particularly surprising because the standard annual allowance was increased from £40,000 to £60,000 in April 2023, giving savers far more room to make pension contributions before facing a tax charge.
Instead of fewer people being caught out, the number has surged, as shown in this government report.
Why are more people falling into the pension tax trap?
According to wealth management firm Evelyn Partners, one of the biggest culprits is the tapered annual allowance.
While most people can contribute up to £60,000 into pensions each tax year without triggering an annual allowance charge, higher earners can see that limit shrink dramatically.
Those with threshold income above £200,000 and adjusted income above £260,000 begin to lose part of their allowance.
For every £2 their adjusted income rises above the limit, their annual allowance falls by £1, potentially leaving them able to contribute just £10,000 before facing an unexpected tax bill.
The problem is that many people don’t realise employer pension contributions count towards the calculation.
A pay rise, bonus or larger employer contribution can suddenly push someone into the taper without them noticing.
Why the bills often arrive years later
Unlike PAYE tax, HMRC doesn’t have the facility to warn savers in real time when they’ve exceeded the allowance.
Instead, the system relies on individuals declaring the breach through Self Assessment, meaning some people only discover they’ve over-contributed two or even three years later.
By then, unwinding pension contributions is often impossible and they can face a sizeable backdated tax charge.
David Little, Partner in Financial Planning at Evelyn Partners, said the latest figures show how easy it is for even financially savvy people to make costly mistakes.
He said: “These are quite striking increases of 22 per cent in the number of individuals reporting annual allowance breaches and 33 per cent in the total value of contributions above the allowance.”
He added that many high earners may have been caught out as salaries and bonuses increased during a period of high inflation, while members of defined benefit pension schemes often find it difficult to calculate how much pension growth counts towards their annual allowance.
“The taper remains a particular trap because the headline £60,000 allowance can give higher earners a false sense of security,” he said.
“It’s striking how many high earners are completely unaware that their pension allowances are tapered until it’s too late.”
Recommended reading
How to avoid an unexpected pension tax bill
Experts say anyone whose income has increased significantly should review their pension contributions before the end of each tax year.
Key steps include:
- Checking pension contributions across every pension scheme.
- Factoring in bonuses, salary increases and employer pension contributions.
- Seeing whether unused annual allowance can be carried forward from the previous three tax years.
- Taking extra care if you’re in a defined benefit pension, where the calculation is based on pension growth rather than simply how much you’ve paid in.
Even if a tax charge can’t be avoided, experts warn against stopping pension saving altogether, as giving up valuable employer contributions or long-term investment growth could prove more expensive than paying the tax.
The latest HMRC figures underline just how complicated pension tax rules remain—and why a seemingly generous £60,000 annual allowance doesn’t always mean you can save that much without landing an unexpected bill from the taxman.
