An unknown number of people aged 55 and over are currently breaching pension tax regulations – and being fined for doing so… although the HMRC, which imposes the penalties, say they don’t know how many people are affected.
The situation has been exposed following a freedom of information request by Royal London director of policy, Sir Steve Webb.
HMRC have refused to find out the figure as it would take three days of work to find out, which they say is above the threshold for undertaking freedom of information responses.
People are unwittingly falling foul of HMRC since a reduced contribution limit was introduced in 2015: while most people can contribute up to £40,000 per year into a pension whilst benefiting from tax relief on their contributions, the Money Purchase Annual Allowance (MPAA) was reduced from £10,000 to £4,000 in 2017.
The reduced limited was intended to discourage people from people moving their funds around and repeatedly benefiting from tax relief on the way in and tax-free cash on the way out.
When a pension fund member makes a withdrawal of taxable cash from one of their pensions, that provider should notify them if they have exceeded the MPAA.
The pension fund member then has three months to notify their active pension scheme. Failure to do so results in a fixed penalty of £300 – which then escalates by £60 per day.
Steve Webb has said that it is “truly astonishing” that HMRC have staff who are tracking down and fining people who don’t comply… “but do not even bother to keep track of how many people they are fining”.
He continued: “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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