In a reply to a freedom of information (FOI) request sent by Royal London director of policy Steve Webb, HM Revenue & Customs (HMRC) admitted that it simply did not know how many people have been fined for breaching the rules, and that retrieving all the information would be a timely and costly exercise.
“HMRC holds information falling within scope of the request, however we estimate that it would exceed the FOIA cost limit to provide this information,” a spokesperson for HMRC told International Adviser.
This is because pension tax relief breaches are dealt on a case-by-case basis due to the complexity of each breach, and the taxman would need to go through every single case to identify the exact figure, the spokesperson added.
Companies and institutions are allowed to refuse to grant FOI requests if doing so would cost more than £600 ($749, €666) or take more than three working days.
Room for improvement
But Webb believes things could be done better, especially when it comes to collecting data.
“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 they are 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.
“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,” he added.
Breaking the rules
Under UK legislation, people are allowed to pay up to £40,000 ($50,096, €44,563) into their pension each year.
But this changes if an individual starts taking lump sums of taxable cash from a pension – they are allowed to take up to 25% tax-free.
This would trigger the money purchase annual allowance, limiting pension contributions to £4,000 a year. It was originally £10,000 but was lowered in 2017.
This significant reduction is to deter people from ‘recycling’ their pension. Meaning, that current rules do not allow people to take out over 25% of their tax-free lump sum to then put it back into another pension scheme.