Lack of HMRC data hiding plight of over 55s facing restrictive £4,000 limit
- Freedom of Information request exposes HMRC not collecting data on how many individuals are breaching the little known ‘Money Purchase Annual Allowance’(MPAA)
- Fears that many over 55s will unknowingly have pension contributions limited to £4,000 because they’ve accessed their pension flexibly, perhaps to cope with loss of income or employment during pandemic
- Aegon calling for HMRC record keeping to be enhanced to show extent of harm being caused to allow Government to review policy and consider increasing MPAA limit
HMRC, in response to a Freedom of Information request from Aegon, has confirmed it cannot tell how many individuals have paid pension contributions above the little known Money Purchase Annual Allowance (MPAA) and as a result had to pay an additional tax charge. The MPAA kicks in if from age 55 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 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.
Individuals who break the MPAA must fill in a self-assessment tax return. Responding to Aegon’s information 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, 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.
Steven Cameron, Pensions Director at Aegon comments:
“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 defined contribution pension as a temporary source of income to tide them over. 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. 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.”
*A brief overview of when this can happen can be found on the MoneyHelper website
**Extract from HMRC response to Aegon: “Information on money purchase annual allowance (MPAA) breaches cannot be separated from the annual allowance (AA) on the self-assessment form. This is because in form SA101, on page 10, there is only one box (box 10) which records the amount by which pension savings exceed an individual’s MPAA, the AA or tapered AA. The actual AA they face is not required.”
***Aegon release on MPAA and when you are likely to breach it. https://www.aegon.co.uk/content/ukpaw/news/pandemic_puts_suitabilityofmpaainthespotlightasmiddle-incomeearn.html
Notes to Editors
- In the UK, Aegon offers retirement, workplace savings and protection solutions to over three million customers. Aegon employs around 2000 people in the UK and together with a further 800 people employed by Atos, we serve the needs of our customers. More information: www.aegon.co.uk
- Aegon’s roots go back more than 175 years – to the first half of the nineteenth century. Since then, Aegon has grown into an international company, with businesses in the Americas, Europe and Asia. Today, Aegon is one of the world’s leading financial services organisations, providing life insurance, pensions and asset management. Aegon’s purpose is to help people achieve a lifetime of financial security. More information on www.aegon.com
- Figures correct, January 2021