The government is not able to evaluate the effectiveness of its cuts to the money purchase annual allowance (MPAA), because it does not have the data on how much tax is collected through this allowance, FTAdviser has learnt.
In response to a Freedom of Information request from Canada Life, HM Revenue & Customs (HMRC) revealed it does not hold information on the number of individuals who paid a tax charge as a result of breaching the MPAA, or the total value of tax collected through the MPAA charge each year.
The MPAA, introduced in 2015 to coincide with pension freedoms, is the amount a person who has already begun drawing on their pension can pay back into their retirement pot in a given year without incurring a tax charge.
The allowance was cut from £10,000 to £4,000 in April 2017, following an announcement in November 2016.
At the time of the announced cut, the government said it wanted to ensure savers were not recycling cash through their pension.
In its policy paper at the time, HMRC forecast an annual tax benefit of £70m from the measure. But it now emerged the tax office has no real way of evaluating whether this was achieved.
Andrew Tully, pensions technical director at Canada Life, said he was surprised HMRC did not collect those details.
He said: "HMRC introduced the MPAA as a result of the pension freedoms, and then reduced it from £10,000 to £4,000, as it believed people could 'work the system', potentially creating tax leakage in the process.
"However it appears HMRC isn't able to monitor the effectiveness of the MPAA as it isn't collecting any statistics on the measure."
FTAdviser understands that HMRC monitors all policy decisions through taxpayer data and modelling. Specifically for the MPAA, it will use an estimate of those who are subject and see how much they reported.
Alan Chan, director and chartered financial planner at London-based IFS Wealth & Pensions, said it was "rather shocking" that HMRC did not know these figures.
He also noted HMRC's policy paper had mentioned the cut would be "kept under review through the monitoring of information collected from tax returns and existing records".
He said: "How can the government monitor the effectiveness of the MPAA if they do not have any reliable figures to work with? You cannot manage something you can't see."
According to research from Retirement Advantage – now Canada Life – published last year, the majority of people who have accessed their taxable pension while still working were "completely unaware" of the MPAA.
Further changes to this and other allowances could be on the table again, as HM Treasury is considering further reductions to tax relief to fund the NHS.
maria.espadinha@ft.com
