Penalties for people who exceed pension annual allowance

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 £
2006/07	140	14,286
2007/08	230	13,043
2008/09	190	42,105
2009/10	170	29,412
2010/11	140	42,857
2011/12	7,490	25,100
2012/13	5,140	23,930
2013/14	8,380	27,804
2014/15	10,150	23,547
2015/16	8,980	19,933
2016/17	18,930	29,635

Withdrawing income

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.

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.