Aegon is calling for a change in the way HMRC collects data after it was revealed it does not have the figures on the number over 55 year olds who paid additional tax charges for breaching the Money Purchase Annual Allowance (MPAA).
Once an individual accesses their defined contributions pension flexibly, the standard annual allowance of £40,000 fall to the MPAA of just £4,000.
Aegon put in a freedom of information request to HMRC to find out how many over 55 years old breached this limit. Aegon says it was concerned number may have increased after people accessed pensions savings to cope with loss of income or employment during the pandemic.
It says it fears these savers may be limited in their ability to get retirement plans back on track if they subsequently find employment because of the £4,000 limit.
However HMRC said it did not keep this data. HMRC confirmed it only collects data from individual tax returns on how many individuals contribute above their annual allowance. However, this doesn’t distinguish between those who exceed the standard £40,000 limit, those 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 says: “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 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.
“The pandemic has caused major disruption to many individuals’ employment or income, and many more over 55s may have turned to taking benefits from their DC pension as a temporary source of income to tide them over.
“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.”