22% of non-advised drawdown consumers unaware of MPAA limit

Twenty-two per cent of non-advised drawdown consumers are unaware of the Money Purchase Annual Allowance (MPAA), with Canada Life warning that savers could be faced with unexpected tax bills.

The MPAA applies to savers that have already begun drawing down their pension, limiting the amount they can continue saving into their pension before being taxed to £4,000 a year. In practice, this means anyone who has withdrawn either a cash lump sum or income in excess of their 25 per cent tax-free lump sum from defined contribution type pensions. Introduced in April 2015, originally set at £10,000, it was reduced to £4,000 in April 2017.

Canada Life technical director, Andrew Tully, noted that while not everybody surveyed will still be paying into their pension, it is “nonetheless concerning that many people are unaware of the restrictions and potential tax implications if they continue to do so”.

“The severe restrictions on the amount that can continue to be paid into a pension once benefits have been drawn are likely to catch many people out, leaving them vulnerable to large tax bills. Navigating the various rules around pensions and retirement can leave people exposed, especially if they have chosen a DIY retirement. Many people are taking advantage of the pension freedoms and yet have no plans to fully retire for many years, so the MPAA is likely to catch out the unwary,” he said.

Brooks added that HMRC has said it is not collating data on the issue, and that it is incumbent on individuals to declare additional savings via the self-assessment process.

“This might sound sensible until you consider the many people who have flexibly accessed pensions without advice who have previously never experienced the self-assessment process and remain blissfully unaware of the problem,” Brooks stated.

    Share Story:

Recent Stories


Cyber Risk
In our latest Pensions Age podcast, Laura Blows discusses cyber risk with Aon partner Paul McGlone, and HSBC Bank Pension Trust (UK) trustee chief risk officer, Cheryl Payne.

A changing DC market
In our latest Pensions Age video interview, Aon DC senior partner and head of DC consulting, Ben Roe, speaks to Laura Blows about the latest changes and challenges within the DC sector

Podcast: Who matters most in pensions?
In the latest Pensions Age podcast, Francesca Fabrizi speaks to Capita Pension Solutions global practice leader & chief revenue officer, Stuart Heatley, about who matters most in pensions and how to best meet their needs
Podcast: A look at asset-backed securities
Royal London Asset Management head of ABS, Jeremy Deacon, chats about asset-backed securities (ABS) in our latest Pensions Age podcast

Advertisement Advertisement Advertisement