In Focus: Advice for Women  

MPAA disproportionately affects women, LGIM claims

The LGIM research also showed more women than men were likely to put their tax-free cash into a saving account, such as an Isa, at 29 per cent compared with 19 per cent of men.

However, when shown the potential return differentials of a pension versus a cash Isa over the past 10 years, 47 per cent of those who had already taken part or all of their tax-free cash, said it would make them think twice about taking out more tax-free cash than they needed.

A further 43 said it made them reconsider withdrawing any tax-free cash from their pension at all until they reached retirement.

Meanwhile, 40 per cent of respondents were not even aware that they could take less than the 25 per cent.

Easier 'than you think' to trigger the MPAA

This is not the first time a major provider has highlighted issues with the MPAA. In August this year, as reported by FTAdviser at the time, pension provider Aegon warned that people on moderate earnings could have their retirement plans "damaged" by the tax penalty.

Its analysis found individuals earning £30,000 a year would trigger the MPAA with monthly pension contribution rates over 13.4 per cent.

At the time, Aegon warned: "The suitability of the MPAA has already come under pressure with changing retirement patterns, as an increasing number of people are accessing their pension flexibly to support a gradual transition to retirement.

"However, the coronavirus crisis has brought the £4,000 contribution limit under further scrutiny. This is because over 55s facing financial difficulty during the pandemic may have dipped into their pension for short-term financial relief but will now find themselves restricted to the MPAA limit for any future pension contributions."

Aegon's analysis showed moderate earners could hit the 4,000 MPAA limit more easily than one might think. As the table above shows, the likelihood of hitting the MPAA after age 55 would fall to 8 per cent for someone earning £50,000 per year.

Aegon said it was important for people to remember the £4,000 limit also includes tax relief and any pension contribution from the employer.