The government’s confirmation it is pressing ahead next month with the reduction in the money purchase annual allowance (MPAA) has reignited the criticism directed at the measure since it was first announced in the 2016 Autumn Statement.
Last November, in a move designed “to prevent inappropriate double tax relief”, Chancellor Philip Hammond (pictured) announced the allowance would be reduced from £10,000 to £4,000 from April 2017.
The resulting consultation, which ended last month, attracted a range of arguments, including that the measure would damage confidence in pensions and should at least see a stay of execution until better evidence could be collected on how people are actually using pension freedom.
Reacting to today’s confirmation of the reduction, Fidelity International head of pensions policy Richard Parkin said it was likely to adversely impact both “consumers acting in good faith and employers seeking to do the right thing”.
“It is likely to affect good consumer behaviour more than it will reduce poor behaviour – causing some to reduce their retirement saving or have restricted access to pension freedoms,” he continued. “This constant moving of goal posts on pension rules only serves to undermine people’s confidence in pensions.
“Our customers tell us one of the main reasons for not saving more for retirement is they do not trust that the rules won’t change again. Not only that, this change makes life harder for employers offering generous pension schemes who now have to deal with yet more administration and cost.”
‘No evidence of abuse’
Aegon head of pensions Kate Smith also expressed disappointment at the move. “Only two years on we’re already seeing the pension freedoms unravelled, based on no evidence that people are deliberately trying to abuse the pension tax system,” she said.
Smith suggested few people would be aware of the risks they will now be running by continuing to make pension contributions, once they have begun accessing their savings.
She added: “The approach is inconsistent with the government’s policy of encouraging fuller working lives and will result in many more people inadvertently breaking this limit and having to curtail post age 55 pension contributions, possibly including having to turn down valuable employer contributions under auto-enrolment.”
The original limit of £10,000 was introduced in April 2015 to stop people claiming further tax relief on any new contributions made to their pots after drawing from them.
Retirement Planner‘s sister title Professional Adviser has again teamed up with Cofunds, the UK’s largest platform, and experts from Technical Connection for a special ‘morning after’ webinar to discuss whatever changes the Budget may bring and how they could affect advisers and their clients. You can register here now and then tune in on Thursday 9 March at 11am.