More than one in 10 (14%) working over-55s have flexibly accessed their pension over the last year, according to a Canada Life survey.

However, two-fifths of all respondents were unaware of any restrictions, such as the money purchase annual allowance (MPAA), on the amount they can continue to contribute to their defined contribution pension pot.

The findings, based on responses from 1,013 UK adults aged 55 and over who are working and have pension savings, showed that 40% are aware of the restriction but are uncertain about the detail. Many respondents overestimated the allowance as almost £7,000 a year. Almost double the real MPAA limitation of £4,000.

Canada Life also revealed that of those who had accessed their pension in the last year, two-fifths (42%) did so to top-up their income, while a quarter (25%) used it to make home improvements and 17% accessed their pension to save their money elsewhere. Over half of people (55%) who have flexibly accessed their pension have also continued to pay into their pot.

Exceeding the MPAA can lead to tax penalties for people at every earnings level. It means future contributions to defined contribution schemes are limited to £4,000 a year, and people lose the ability to carry forward unused allowances from the previous three tax years.

Canada Life technical director, Andrew Tully, suggested the MPAA is penalising people for “doing the right thing”.

“Retirement journeys are changing and it is no longer the cliff-edge event it used to be,” Tully said. “Many more people are choosing to retire later for a variety of reasons and continue working in older age, either by reducing their hours, setting up their own business or perhaps embarking on a less pressured career.
 
“Particularly after the financial stresses of the last year, it is understandable that people have chosen to access their pension savings for any number reasons, perhaps to top up their salary under furlough or to make those essential home improvements.
 
“Given the impact COVID-19 is having on our country there is a strong case for reviewing the MPAA, so those who access taxable income from their pension can re-build their savings once this crisis is over. At the very least the MPAA should go back to the previous limit of £10,000, although my preference would be to scrap it altogether.”

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