Nearly 300,000 pension savers trigger MPAA in 2021

HMRC published the figures today to align with information released by the OBR in their economic and fiscal forecasts at the Spring Statement.

The annual allowance is currently capped at £40,000 but a lower limit of £4,000 applies once someone aged over 55 accesses their pension, triggering the MPAA.

Stephen Lowe, group communications director at retirement specialist Just Group, commented: “Nearly 1.9 million pension savers have become subject to the onerous MPAA rules in the seven years since the pension ‘freedom and choice’ reforms, including 292,000 during 2021.

“These rules impose tax charges on those whose total contributions to a defined contribution pension exceed £4,000 a year. It sounds a lot but is only about £266 a month for a basic rate taxpayer and £200 a month for a higher rate taxpayer, including both their own and any employer contribution.

“That might not be a problem for people giving up work. But early access to pensions is now the norm and those who don’t intend to retire but take even one flexible payment, perhaps to tide them through a sticky patch for their finances, are then forever subject to the MPAA which could prevent them from catching up on their retirement savings later.

“We really don’t know how many people understand the longer-term consequences of taking their first flexible payment. We do know that for more than 1,000 pension pots used to buy drawdown every week, no advice or guidance is taken.

“It remains a concern to government and regulators that so many fail to take up their entitlement to free, independent and impartial pensions guidance from government-backed Pension Wise. Implementing meaningful ways to increase guidance use, such as by automatically booking sessions for those accessing pensions for the first time, would go a long way towards helping people understand how not to fall foul of complexities like the MPAA.

“Today’s figures also don’t tell us whether people have small or large pots, what their withdrawal rates are or how many might be emptying pots for lump sums or using them to generate an income stream.

“There will be winners and losers from pension freedom and it is disappointing there is still no reliable source of data that can act as an early warning system of who might be running into problems.”