People dipping into their pensions for the first time are triggering complex tax rules, according to analysis by retirement specialist Just Group.

It found that 148,000 people took their first flexible payment from a pension in the first half of 2022.

That’s nearly 1,200 people a day, according to the analysis of HMRC figures.

But doing so has made them subject to complex Money Purchase Annual Allowance (MPAA) rules designed to restrict the amount of tax relief given on future pension contributions and to stop pension ‘recycling’.

The rules slash the total amount that can be saved tax-free into a defined contribution pension each year, from the normal annual allowance of £40,000 to £4,000. The rules also impose strict requirements to notify the saver’s other schemes that a flexible payment has been taken.

Stephen Lowe, group communications director at retirement specialist Just Group, said: “More than 2m pension savers aged 55 or older are now subject to the MPAA rules.”

Once triggered, the rules apply for life, he pointed out.

He said that a £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.

He said: “This may sound a lot but is a relatively modest sum where people are trying to build up a pot 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.”

He said that the complexity of the rules meant it was likely that people will be caught out, particularly as Financial Conduct Authority figures show less than half of the 700,000 pensions accessed each year are taken after professional financial advice or use of the government’s free, independent and impartial guidance service Pension Wise.

“Taking tax-free cash doesn’t trigger the MPAA rules but any amount above this does. Buying guaranteed lifetime income isn’t a trigger but withdrawing funds designated to drawdown is,” he said.

He said that level of confusion underlines the importance for consumers to talk to a Financial Planning expert before taking any action.

Mr Lowe said: “It’s a veritable web of dos and don’ts, topped off by the fact there are financial penalties for getting it wrong – 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.”