HMRC fails to confirm how many face £4k pension limit

HMRC has confirmed it cannot tell how many individuals have paid pension contributions above the money purchase annual allowance (MPAA), and as a result had to pay an additional tax charge, according to a Freedom of Information (FOI) request from Aegon.

The MPAA kicks in from the age of 55 if an individual accesses their defined contribution pension flexibly.

Once triggered, the MPAA reduces the maximum annual pension contributions in a tax year from the individual and their employer from the standard £40,000 to just £4,000.

With the disruption to employment caused by the pandemic, Aegon fears that “many more” over-55s will have taken money from their pension to tide them over, but on regaining employment will be limited in their ability to get retirement plans back on track because of the £4,000 limit.
Responding to Aegon’s FOI request, HMRC explained that it does collect data from individual tax returns on how many individuals contribute above their allowance. However, this doesn’t distinguish between those who exceed the standard £40,000 limit, high earners affected by the tapered annual allowance, or the likely far wider group of moderate earners who inadvertently break the £4,000 MPAA.

Aegon pensions director, Steven Cameron, said that there are “widespread concerns” that the MPAA of £4,000 has been set too low.

“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,” Cameron said.

“It’s very concerning that HMRC isn’t collecting data on how many people are affected by this. Their data combines this group with those breaching the £40,000 standard annual allowance, or the tapered annual allowance, both of which consist of a very different population of people, mostly high earners, including those receiving a boost to their defined benefit pension because of a large salary increase.

“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 from £4,000 back to its original level of £10,000.”

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