The government has confirmed the pre-election policies in its 2017 Finance Bill that were due to take effect from April this year, including the cut to the money purchase annual allowance (MPAA), will apply as intended.
This means savers who have accessed their pension from age 55 will see the annual tax-free allowance cut from £10,000 to £4,000 for the 2017/18 tax year.
The confirmation came in the form of the Finance Bill 2, which confirmed it would legislate for policies that have already been announced, and that there would only be technical adjustments made “to ensure the clauses function as intended”.
The MPAA applies to individuals who have flexibly accessed their pension benefits. 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.
The 60% cut was first announced by chancellor Philip Hammond in his 2016 Autumn Statement and confirmed in the 2017 Budget but the timing of the snap general election caused the government temporarily to shelve the Finance Bill. As such, the issue of whether or not the change to the MPAA would take effect from April 2017 as planned proved a headache for advisers.
AJ Bell senior analyst Tom Selby said many retirees would have hoped the MPAA would have been delayed until April 2018 and suggested the confirmation would come as a “bitter blow to thousands”.
“We do at least have clarity on what the MPAA is for 2017/18, which means advisers and individuals can plan with a degree of certainty,” he said. “The reality, though, is the UK pension tax regime is a mess, bedevilled by complexity and confusing even to seasoned industry experts.
“Rather than continuing to tinker with a broken system, the government should carry out a root-and-branch review aimed at simplifying the rules and encouraging more people to save for retirement.”
Old Mutual Wealth head of retirement policy Jon Greer commented: “Finally we have received some clarity on the reduction to the MPAA and the industry will be pleased to be able to advise appropriately on this change that has been stuck in limbo for months.”
He added: “Uncertainty and changes to pensions tax rules are too often bedfellows. The recent Retirement Income Study from the FCA noted this distrust is causing people to make rash decisions about their retirement provisions and found ‘most pots are fully withdrawn and consumers withdraw their savings partly because they have limited trust in pensions’.
“We urge the new government to carefully consider its future policies and halt this unpalatable ride.”