Almost one million savers could be subject to punitive tax charges on their pension, MoneyWeek has warned.
According to the publication, almost a million savers have unknowingly triggered a substantial reduction in their annual contributions, and may now fall foul of the money purchase annual allowance (MPAA).
The MPAA rule cuts the standard £40,000 annual allowance on pension contributions by a factor of ten. This means that if savers go over £4,000 they will be taxed at their highest rate of income tax on the excess.
According to Just Group, between April 2015 and September 2018, 980,000 people made flexible withdrawals from their pension fund, and so may have triggered this rule.
MPAA was implemented in April 2015, alongside other pension freedom reforms. Policymakers intended it to prevent people making withdrawals from their savings and immediately reinvest it to claim extra tax relief. Yet some have taken advantage of the pension freedoms to work part time and make withdrawals from their pension to maintain their income while also continuing to contribute.