Pensions providers have united in calling for the government to scrap plans to cut the money purchase annual allowance (MPAA) from £10,000 to £4,000.
The proposal, which would cut the amount able to be paid into a pension once savings have been accessed flexibly, is due to come into force in April 2017, but has been met with heavy criticism from the pensions industry.
The government said the cut to the allowance would limit those who abuse the system by “recycling” pension savings back into their pot to get twice the regular amount of tax relief. Providers, pointing to a lack of data, have questioned whether the practice is common enough to warrant an overhaul.
Aegon, AJ Bell, Hargreaves Lansdown, Nucleus and Fidelity are among those to have criticised the plans in their consultation responses. Most called for the planned cut to be scrapped, although some, like Fidelity, are pushing for a 12-month delay instead.
Most have said the change could penalise those working longer in life. This group are among those most likely to make use of the MPAA.
Those accessing their pension before they fully retire would also be more likely to lose out on employer contributions if the cap is lowered to £4,000.
“We must carefully consider any changes that could be seen to prevent good consumer behaviour or hinder the pension freedoms significantly,” said Fidelity head of pensions policy Richard Parkin.
Rachel Vahey, product technical manager at Nucleus, added: “Pensions freedom and choice was introduced as a way of helping people merge working with taking some retirement income. Reducing the MPAA doesn’t allow those people to fully rebuild their pension income. It shows on pensions freedoms that the government is talking the talk, but not walking the walk.”
First announced in last year’s Autumn Statement, the change was the subject of a consultation which closed on 15 February. The government is expected to respond to the consultation by the time of the Budget, scheduled for 8 March.