HMRC unable to tell MPAA breaches

HMRC unable to tell MPAA breaches

HM Revenue and Customs has confirmed it cannot tell how many individuals have paid pension contributions above the Money Purchase Annual Allowance.

Responding to Freedom of Information request from Aegon, HMRC explained it does collect data from individual tax returns on how many individuals contribute above their allowance but it doesn't distinguish between those who exceed the standard £40,000 limit, high earners affected by the tapered Annual Allowance, or the group of moderate earners who break the £4,000 MPAA.

It said: “Information on Money Purchase Annual Allowance breaches cannot be separated from the Annual Allowance on the self-assessment form. 

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“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.”

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

Once triggered, the MPAA reduces the maximum annual pension contributions in a tax year from the ‘standard’ £40,000 to just £4,000. 

With the disruption to employment caused by the pandemic, Aegon said it fears many more over 55s will have taken money from their pension to tide them over, but will struggle to get their retirement plans back on track on regaining employment because of the £4,000 limit.

Steven Cameron, pensions director at Aegon, said: “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.”

Cameron added: “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.”

Philip J Milton, chartered wealth manager at Philip J Milton & Company, thought it was “bemusing that HMRC cannot say how many tax-payers have been penalised”. 

He said: “I suppose it would always be ‘after the event’ but a good start would be to consider how many pension account holders have taken a penny form a pension so they cannot contribute more than £4,000 per annum into pension schemes ongoing.

"The first figure should surely be easy and then the match with those continuing to contribute anything at all I should have thought – and then the balance which is those subjected to a penalty.”

He added: “It even makes me wonder if HMRC knows that it is actually taxing those who are inadvertently paying over £4,000 per annum, especially if the trigger is for the individual himself to complete a self-assessment return. They wouldn’t do that if they didn’t appreciate the rule.