Around 148,000 people took their first flexible payment from a pension during the first six months of 2022, analysis of the latest HMRC figures by Just Group has found.

According to the analysis, the figures from HMRC showed that nearly 1,200 pension savers are dipping into their pensions for the first time every working day, in turn triggering the Money Purchase Annual Allowance (MPAA) rules.

These rules are designed to restrict the amount of tax relief given on future pension contributions and to stop pension recycling, reducing the total amount that can be saved tax-free into a defined contribution (DC) pension each year from £40,000 to £4,000.

According to Just Group group communications director, Stephen Lowe, this £4,000 a year input limit is equal to a maximum employee contribution of £187 a month for a basic rate taxpayer whose employer is contributing £100 a month.

“This may sound a lot but it is a modest sum where people are trying to build up a quickly, which is typical for those in the last few years before retirement or if they have dipped into their pension to help them through a tough spot due to the pandemic or cost of living crisis,” Lowe continued.

“More than two million pension savers aged 55+ are now subject to the MPAA rules and current figures suggest that is growing by nearly 1,200 each working day. Once triggered, the rules apply for life – you can’t go back – so it is important people understand the consequences.”

Lowe also suggested that savers are more likely to be caught out given the complexity of the rules, highlighting research from the Financial Conduct Authority (FCA), which suggested that many savers are still failing to take advice before accessing their pension.

“It’s a veritable web of dos and don’ts, topped off by the fact there are financial penalties for getting it wrong," he stated, “for example a fine of £300 plus £60 a day for failing to notify other schemes within 91 days that a first flexible payment has been taken."

Lowe also highlighted this complexity as demonstration of the need to boost Pension Wise guidance, arguing that more robust intervention, such as auto-enrolling people into guidance sessions, is required.

“MPs on the Work & Pensions Select Committee recently reiterated their call for an evaluation trial to test the effect of auto-booking people into Pension Wise appointments," he added.

"The government has so far ignored these calls despite the fact we know thousands are making complex financial decisions every week without support. Hopefully the new Pensions Minister will be more interested in finding solutions to this problem.”

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