HMRC has ‘no clue’ how many members have faced pension tax relief fines

Kim Kaveh reports...

HM Revenue and Customs (HMRC) does not know how many people it has fined for breaching pension tax relief rules, a Freedom of Information request has revealed.

Tax relief is normally available on pension contributions of up to £40,000 a year under the annual allowance. However, once a flexible withdrawal has been made savers become subject to the money purchase annual allowance (MPAA) – which was reduced to £4,000 in 2017 to stop savers from “recycling pension savings” and benefitting from double tax relief.

When the MPAA is triggered, often through Freedom and Choice, the paying scheme should inform the member the allowance has been hit, and the member then has three months to notify their current pension provider. Failure to do so can result in savers facing a fixed penalty of £300 and then an escalating penalty of £60 per day.

However, in response to the information request from former pensions minister and Royal London director of policy Sir Steve Webb, the tax office said that it did not collate the number of fines issued into a comprehensive dataset.

The response said: “The cases that might fall within the request are dealt with by HMRC on a case-by-case basis and the level of detail of our statistical measures means that we cannot readily identify the relevant information without interrogating each of our finalised or ongoing cases in detail.”

Under Freedom of Information Act rules, a request can be rejected if it requires too much time or expense to find the data, and HMRC invoked this exemption in Webb’s case.

Webb said that it is “truly astonishing that HMRC are presumably fining people for not complying with complex regulation but do not even bother to keep track of how many people it is fining”.

“HMRC would take a dim view of any taxpayer who did not keep proper records, yet they appear not to have a clue about their own actions,” he continued.

“If large numbers of people are being fined for non-compliance then we need to know so that more can be done to alert customers as to their responsibilities under the law. Even if HMRC have no historic information, they should, at the very least, start to keep records now.”

Earlier this year, HMRC told Just Group that more than one million people aged over 55 are subject to harsher pension contribution limits as a result of using the pension freedoms. It told the firm that an average of 70,000 people each quarter have taken a flexible payment for the first time under the rules.