HMRC unsure on number of pension tax rulebreakers

HMRC does not know how many people they are fining each year over breaches to pension tax relief regulations, Royal London has revealed.

In a freedom of information response obtained by Royal London, HMRC 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.

Under current rules, most people can contribute up to £40,000 per year into a pension whilst benefiting from tax relief on their contributions.

However, since 2015, a reduced contribution limit, known as the Money Purchase Annual Allowance (MPAA), has applied to people who start to take chunks of taxable cash from a pension using the new pension freedoms legislation.

When a member makes a withdrawable of taxable cash from one pension, their provider should notify them if they have triggered the MPAA, which was reduced from £10,000 to £4,000 in 2017.

The member then has three months to notify their active pension scheme that the lower limit applies. Failure to do so results in a fixed penalty of £300, which escalates by £60 per day.

Royal London director of policy, Steve Webb, said that it is “truly astonishing” that HMRC are funding people for “not complying with complex regulation but do not even bother to keep track of how many people they are fining”.

He continued: “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.”

The reduced limited was designed to stop people from people taking money in and out of pensions, repeatedly benefiting from tax relief on the way in and tax-free cash on the way out.

The MPAA is triggered by taking a chunk of taxable cash using the new ‘pension freedoms’, but is not triggered if a saver only takes their tax-free lump sum. It is not triggered by those who use the rules for taking a ‘trivial’ small pot in full.

    Share Story:

Recent Stories

De-risking options for pension schemes
In this latest Pensions Age podcast, Linklaters' Sarah Parkin talks to Laura Blows about the wide range of choice available to pensions schemes for the partial, or full, removal of their risks

Risk transfer opportunities
Laura Blows speaks to Lisa Purdy, Head of Fiduciary Distribution at Legal & General Investment Management and Gavin Smith, Pricing and Execution Director - UK PRT at Legal & General, about the impact of the recent market volatility on the bulk annuity and risk transfer market and the potential opportunities for the future

Bulk annuities during coronavirus
Laura Blows speaks to Just business development manager Prash Mehta about the impact of coronavirus on transactions

Investing in infrastructure
Laura Blows speaks to James Dawes about how, and why, pension funds should be looking at infrastructure as an investment opportunity