Pension Wise, the government-backed website launched to help the over 55s navigate pension decisions, has buried information deep in its website on the tax implications of taking pension withdawals, claims a former pensions minister.
Following the introduction of pension freedoms in 2015, the government launched the Pension Wise website to provide over-55s with free and impartial information about the options available when accessing their pension savings.
Since its launch, the site has received more than 5m visits. But in comments to FTAdviser’s sister publication the Financial Times, Baroness Ros Altmann, pension minister in the previous Conservative government, warned it fails to set out clearly how future pension saving could be severely restricted when funds are accessed.
The annual allowance for most savers, which governs how much can be saved into a pension each year and benefit from tax relief, is £40,000, with a tapering allowance for higher income earners. However, this could be cut to £4,000 when even as little as £1 over the 25 per cent limit of tax-free cash is taken from a defined contribution pension fund.
Triggering the money purchase annual allowance (MPAA) can have serious implications for over-55s who had planned to carry on working and benefiting from employer pension contributions with contributions over £4,000 subject to tax.
“Just using the Pension Wise website is not sufficient for most people to deal with the changes and complexities of pensions,” Baroness Altmann told the FT.
“There is a real concern that people, when withdrawing money from their pensions, could inadvertently land themselves with a big tax bill when making further pension contributions.”
Information about the MPAA can be found on the Pension Wise website under options on ways to take your money.
A single paragraph under the “Get an adjustable income” section stated: “You may be able to keep paying in after you take money out but you could pay tax on contributions over £4,000 a year (known as the ‘money purchase allowance’).”