HMRC unable to tell MPAA breaches

“It also suggests that those doing so could wait for two or three years or so before HMRC may catch-up through the back door.”

Unknowingly triggered

Tim Morris, IFA at Russell & Co Financial Advisers, gave one example of a client who came to him after unknowingly triggering the MPAA. 

“This really restricts what she can do in terms of future pension planning – and she still has seven years until she plans to retire and is currently a higher rate taxpayer so would benefit from further pension contributions.

“It happened because she accessed a small pension under pension freedoms to help her daughter get on the property ladder.

"At the time, her earnings for the tax year were low and she thought she could draw the pension with little tax to pay. An example of a bit of knowledge being a dangerous thing – yet also the increased complexity of the various annual allowances we now have."

Morris said the £4,000 limit was “much too restrictive”, especially in the age of pension freedoms when more people are accessing their pensions prior to retirement.

Impact needs to be assessed

Ricky Chan, director at IFS Wealth & Pensions, also agreed with Aegon’s sentiment that HMRC should be doing more to assess the impact of the MPAA’s restrictions and the numbers who inadvertently breach it. 

“Collecting more data usually means placing the onus on individuals to accurately declare these on their tax-returns and understanding which allowance has been breached – generally pensions and tax are quite complicated so this may present a challenge in itself,” he said. 

“This might lead to more individuals needing professional help (so higher costs) to fill in what may otherwise have been a more straightforward tax-return.”

Aegon is also encouraging the government to urgently consider increasing the MPAA from £4,000 back to its original level of £10,000.

Earlier this year, Jon Greer, head of retirement policy at Quilter, told the Work and Pensions select committee the government should "take a good look" at the MPAA, especially in the current economic climate following Covid-19.

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