HM Revenue & Customs does not collect data on how many individuals are breaching the Money Purchase Annual Allowance, a Freedom of Information request from Aegon has discovered.
As a result, HMRC does not know how many individuals have incurred additional tax, prompting concern that a high number of over-55s will have been affected.
Once triggered, the MPAA reduces the maximum annual pension contributions in a tax year from the individual and their employer from £40,000 to £4,000. Aegon warned that the disruption from the pandemic may have led to more over-55s taking money from their pension to tide them over, causing them to breach the allowance and becoming subject to the £4,000 limit going forward. Anyone paying above the MPAA will be liable for an additional tax charge.
While HMRC collects data from individual tax returns on how many individuals contribute above their allowance, it doesn’t differentiate between those who exceed the standard £40,000 limit, high earners affected by the tapered annual allowance or those who breach the £4,000 MPAA, prompting Aegon to call the lack of detail “concerning.”
“It’s very concerning that HMRC isn’t collecting the detailed data to show the scale of the issue and how this is changing over time.” – Steven Cameron
Steven Cameron, pensions director at Aegon, said: “There are widespread concerns that the Money Purchase Annual Allowance of £4,000 has been set too low. It’s very concerning that HMRC isn’t collecting the detailed data to show the scale of the issue and how this is changing over time. We fear the MPAA is catching an increasing number of over 55s who take some of their pension flexibly without realizing the limit this places on future pension contributions.
“The pandemic has caused major disruption to many individuals’ employment or income and many more over 55s my have turned to taking benefits from their defined contribution pension as a temporary source of income. Hopefully, those who want to may regain employment and want to continue to save for a future retirement. But many, including some on moderate incomes could find the MPAA places a limit on future contributions, denting their ability to get their retirement plans back on track.
“It’s very concerning that HMRC isn’t collecting data on how many people are affected by this. 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.”
Cameron added: “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.”
