A Freedom of Information request has revealed a large number of people have been hit with penalties due exceeding to the pension annual allowance.
The annual allowance, which effectively sets the tax-efficient ceiling on annual pension contributions, started in 2006 at £215,000. However, it has since reduced considerably and currently stands at £60,000. If pension contributions exceed the annual allowance in any tax year, there will be a tax charge payable.
The table below, using data provided under the Freedom of Information request published at the start of 2019, provides more information.
|Tax Year||No. of people reporting they exceed their annual allowance||Average excess reported
Since 2015/16 there has also been a reduced allowance (the ‘money purchase annual allowance’ or MPAA), which applies as soon as you first draw retirement income using pension flexibility. The MPAA currently stands at £10,000, meaning the tax charge referred to above applies if contributions exceed £10,000, rather than £60,000. To enforce this, the law says that within 31 days of starting flexible income from your pension, your provider must supply you within a ‘flexible access statement’. You then have 13 weeks to inform any money purchase scheme to which you or your employer are contributing. Failure to do so is subject to penalties of an initial £300 plus further amounts of up to £60 a day until HMRC are notified.
This information is a reminder of how complex the rules for pension contributions have become. The safest course of action is to seek expert advice before making any change to your pension arrangements. Alan Boswell Group can help – call us on 01603 967967 to organise a no-obligation conversation with a financial planning expert.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice.