The number of people paying tax penalties for exceeding the annual or lifetime limits on pension tax relied rose sharply between the 2020/21 and 2021/22 tax years, according to new figures from HMRC.

The number of individuals reporting through their tax return that they exceeded the annual allowance rose from 43,870 in 2020/21 to 53,330 in 2021/22.

The excess contributions rose from £814m to £1.21bn.

The number of people incurring lifetime allowance charges rose from 8,820 to 11,660 over the same period.

The amount paid in charges rose from £391, to £497m.

Steve Webb, partner at pensions consultancy LCP and former Pensions Minister, said the figures show why the Chancellor felt forced to act in his Spring Budget.

He said: “These figures show why the Chancellor felt forced to act in his March 2023 Budget.  Between 2020/21 and 2021/22 the number of people paying tax penalties for exceeding the annual or lifetime limits on pension tax relief went up sharply, generating hundreds of millions of pounds extra for the Treasury.  

“One major group affected was senior NHS doctors who could face big tax bills as another year of service in the NHS added significantly to the value of their pensions. 

“Both Annual and Lifetime Allowance limits have been hitting a wider and wider group of individuals which has added great complexity to the system of pension tax relief and the 2023 Budget changes will therefore make matters a great deal simpler for the widening group that might have been affected.”

HMRC published the latest pension tax relief data on Wednesday morning.