Those approaching or in retirement could be faced with unexpected tax bills due to low levels of awareness of the Money Purchase Annual Allowance (MPAA), with 22 per cent of consumers unaware of the annual limit you can pay into your pension after drawdown, new research from Canada Life has found.
Commenting on the statistic, Canada Life technical director Andrew Tully: “While not everybody we 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 continued 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.”
Tully highlighted that “navigating” the various rules around pensions and retirement can leave consumers exposed, particularly 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.
HM Revenue & Customs has said that it is not collating date on this issue and that it is relying on people to declare additional savings via the self-assessment process. However, Tully highlighted an issue with this method, being that “many people who have flexibly accessed pensions without advice who have previously never experienced the self-assessment process” will remain “blissfully unaware” of the problem.
Tully recommended that getting professional help can help savers “work out the best approach” based on their individual circumstances.
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