The money purchase annual allowance (MPAA) has trapped almost one million over-55s, who must now live with a permanent reduction to the amount they can put into their pension tax free.
For individuals wishing to dip into their retirement pots using the pension freedom rules, tax relief is available on contributions up to £40,000 a year, but those who have already made a flexible withdrawal, instead become subject to the MPAA of £4,000 a year.
Experts fear that many savers who took cash from their pensions are unaware that their tax relief limits have been slashed. Data from HM Revenue & Customs has revealed 980,000 over-55s who used the pension freedoms between 2015 and 2019 have been caught by the MPAA, the Financial Times reports.
As a result, their annual allowance has been cut from £40,000 to £4,000. The figures were released following a freedom of information request by Just Group. Industry leaders have called on the regulator to ensure people are able to receive independent and impartial guidance to prevent people from making uninformed, irrevocable choices that can cause harm.