Have you damaged your retirement plans? Over 55s warned of ‘hidden risk’

Pension: Expert advises people to 'start sooner'

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The rule is triggered when someone accesses their pension funds for the first time and reduces the tax-benefits of any further contributions past this point.

This means from this point onwards, people are only able to contribute £4,000 a year to their pension without incurring a tax penalty.


The MPAA rule is little know and has been called a “hidden risk” to those approaching retirement.

Before, the amount they could contribute without a tax penalty was £40,000 a year.

Currently, people can access their pension savings without penalty when they reach the normal minimum pension age, aged 55.

This age will increase to 57 in 2028.

The MPAA had already come in for criticism pre-pandemic as shifting retirement patterns meant more people were accessing pension savings early to slowly transition into retirement.

However, the pandemic has brought this issue into sharp focus as many aged 50 and above have had little choice but to dip into their savings to tide themselves through lockdown.

Steven Cameron, pensions director at Aegon, said: “The last 18 months have seen many individuals face difficult decisions as the coronavirus has left a damaging toll on personal finances.

“Those over-55 who have lost their job or faced reduced wages may have been tempted to dip into their pension to access financial support during the crisis.”

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He said the ability to access pension savings flexibly “comes with a sting in the tail”.

Accessing this necessary short-term will limit their retirement savings as the current rules stand.

Analysis by Aegon has also shown that reaching this £4,000 threshold is surprisingly easy, as people on a salary of £30,000 a year will suffer if they contribute over 13.4 percent of their salary into their pension.

The contributions people will be able to make as a proportion of their earnings gets more limited as their salary increases.

Mr Cameron said: “Aegon’s analysis shows that even those on moderate incomes are at risk of breaching the MPAA.”

He stressed that savers “need to have their eyes wide open when accessing their pension to avoid devastating consequences on future retirement plans.”

People earning a salary of £50,000 will only be able to pay in eight percent of their salary to get to the £4,000 mark.

Mr Cameron called on the Government to increase the £4,000 threshold so that people adversely affected by the crisis are not left “disadvantaged in their ability to rebuild their pension savings.”

“Increasing the MPAA limit to at least £10,000 would go some way to help those individuals whose retirement plans have been thrown into disarray.”

The financial burden of the pandemic has been demonstrated as one in 10 over-70s are marching back into work, many only to dig themselves out of financial difficulty.

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