Under current rules, most people are allowed to contribute up to £40,000 per year into a pension whilst benefiting from tax relief on their contributions. But since 2015, a reduced contribution limit has applied to people who start to take chunks of taxable cash from a pension using the new pension freedoms legislation. The limit, known as the Money Purchase Annual Allowance (MPAA) was originally £10,000 and was reduced to £4,000 in 2017. The idea of this reduced limit is to discourage people from ‘recycling’ money in and out of pensions, repeatedly benefiting from tax relief on the way in and tax-free cash on the way out.
The way that the system works is that when an individual takes a chunk of taxable cash from one pension, their pension provider is meant to notify them that they have triggered the MPAA. The customer then has three months to notify their active pension scheme (eg their current workplace pension provider) that the lower limit applies. Failure to make this notification triggers a fixed penalty of £300 and then an escalating daily penalty of £60 a day.
However, when asked by Royal London policy director Steve Webb how many people had triggered the charge since it came in, HMRC said that they did not know. They also said that it would be disproportionately expensive to find out, as it would take more than three days of work to obtain the information.
Commenting, Steve Webb said: ‘It is truly astonishing that HMRC are presumably fining people for not complying with complex regulation but do not even bother to keep track of how many people they are fining. HMRC would take a dim view of any taxpayer who did not keep proper records, yet they appear not to have a clue about their own actions. If large numbers of people are being fined for non-compliance then we need to know so that more can be done to alert customers as to their responsibilities under the law. Even if HMRC have no historic information, they should, at the very least, start to keep records now”.
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