HMRC has not been collecting data on how many individuals are breaching their money purchase annual allowance (MPAA), stoking fears many over 55s will unknowingly have pension contributions limited to £4,000.
In a freedom of information request, the pensions firm Aegon received confirmation from HMRC it cannot tell how many individuals have paid pension contributions above the little-known MPAA, and had to cough up an additional tax charge as a result.
The MPAA kicks in for individuals over 55 who access their defined contribution pension flexibly, perhaps to cope with a loss of income or employment, reducing their maximum annual pensions in a tax year from £40,000 to just £4,000.
Individuals who go over the MPAA must fill in a self-assessment tax return and pay tax on the excess cash.
Steven Cameron, pensions director at Aegon said:
“We fear the MPAA is catching an increasing number of over 55s who take some of their pension flexibly, without realising the limit this places on future pension contributions, including through auto-enrolment workplace schemes. Anyone who does pay above the MPAA is subject to a tax charge.
“We urge HMRC to update the data it collects, to reveal the number of people whose retirement plans are being damaged by such a low MPAA. In the meantime, we would encourage the Government to urgently consider increasing the MPAA.”
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