HM Treasury was right to ignore the pension industry's near-unanimous opposition to its decision to slash the money purchase annual allowance (MPAA) by 60 per cent, a tax expert has said.
John Cullinane, tax policy director at the Chartered Institute of Taxation, argued the only groups that put in submissions to the consultation were the groups affected by the controversial measure, and they would naturally object.
In last year's Autumn Statement, chancellor Philip Hammond announced the money purchase annual allowance would be cut from £10,000 to £4,000 - a measure affecting over-55s who had already accessed their taxable pension, but were also contributing to a pension.
However, before implementing the policy on 6 April this year, HM Treasury launched a consultation, in which the industry overwhelmingly opposed the measure.
There were two main arguments against the measure: first, that there was no evidence people were using the MPAA to recycle pension tax relief; and second, that placing a further restriction on flexibility went against the spirit of pension freedoms.
HM Treasury's decision to push ahead with the policy regardless drew further criticism from the industry.
But Mr Cullinane said HM Treasury was right to stick to its original position and resist the pressure to back down.
"I think [the MPAA consultation] is an example of where I would understand the government ignoring the majority of people who responded," he told FTAdviser.
"Because obviously, who would respond to that? The industry and the people affected. So without going completely to town on all the rights and wrongs, if it was a reasonable decision to start with, it is not unreasonable to go ahead."
He added, however, that this did not mean the consultation exercise was valueless.
"If there was a showstopper, it would have given a chance for it to come out. If there was a particular aspect that was unfair, they would have given it a chance for that to be adjusted.
"I don’t think you can say just because they did exactly what they originally said they would, it was a waste of time," he said.
While he said he could understand people "being taken by surprise that they might be affected by this restriction", he argued that "quite a lot of people" were probably using the rule to churn tax relief.
"It’s kind of free money if you understand it all and you’re able to take advantage of it," he said.
There is no hard evidence that Mr Cullinane is correct that people are "churning" tax relief.
A freedom of information request lodged by FTAdviser with HM Revenue & Customs revealed the tax man had no evidence that people were actually using this method to recycle tax relief.
A HMRC spokesperson told FTAdviser: "Following a search of our paper and electronic records, I have established that HMRC does not hold the information within the scope of your request.
"MPAA was introduced in April 2015 and there is currently only limited data on those who have accessed their pensions flexibly.
"We are not able to identify the number of individuals who are both accessing and concurrently saving into a pension."
Richard Parkin, head of pensions policy at Fidelity International, said the government's decision to ignore the industry's objection to the cut to the MPAA was "galling".
"Given the industry is united in its opposition to the change, and is willing to put forward alternatives, it's really disappointing that they've ignored us.
"It's particularly frustrating that they don't have any evidence of the loophole being used," he said.
Mr Parkin predicted the new rule would have the greatest impact on people on medium incomes with a good workplace pension, who inadvertently drawdown on another pension, unaware that this will trigger the MPAA.
While the pensions industry was almost unanimous in its opposition to the policy, the financial advice industry appeared to be indifferent, with none of the major professional bodies or lobby groups putting in a submission.
Recent research by Retirement Advantage found that the majority of over-55s were "completely unaware" of the change to the MPAA, which is now in force.
james.fernyhough@ft.com
