Treasury disappoints on money purchase annual allowance cut

Treasury disappoints on money purchase annual allowance cut

The government is set to move ahead with its plan to slash the money purchase annual allowance by 60 per cent to £4,000 a year, after chancellor Philip Hammond included savings from the measure in his budget papers.

The decision, which was brought in to prevent "pension recycling", drew immediate criticism from much of the industry on the grounds that it would harm vulnerable people, and was against the spirit of pension freedoms.

Mr Hammond made no mention of the decision in his budget speech to parliament.

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However, the MPAA was included in the budget papers, under the section that laid out projected savings from Autumn Budget measures that would be introduced in April 2017.

This confirmed Treasury would move ahead with the change, despite widespread opposition from the industry during the consultation phase

Treasury projects the measure will save the budget £65m in 2017-18, and £70m for every other year up to 2021-22.

The decision will affect over-55s who access the taxable part of their defined contribution pension.

Currently, this group is allowed to contribute up to £10,000 a year into a DC pension, as opposed to £40,000 for those who have not accessed their pension.

But today the government confirmed it would slash this from £10,000 a year to £4,000.

Richard Parkin, head of pensions policy at Fidelity International, said he was "disappointed" by the government's decision to move ahead with the cut.  

"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 said.

He said the "constant moving of goal posts" on pension rules was undermining the public's confidence in pensions.

"Our customers tell us that one of the main reasons for not saving more for retirement is they don’t 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," he said.

Pete Glancy, head of industry development at Scottish Widows, agreed, saying the move would "penalise those who need to make use of pension freedoms".

"We estimate that tens of thousands of people will be affected by this change, and especially vulnerable customers who do not have access to professional financial support," he said. 

"It’s vital that we ensure support is available for those who need it, and we must remember that there will be people who have taken some money from their pension already.

He said there was a "big educational job" to be done by providers, advisers and public services to ensure people understand the new rules.

Martin Tilley, director of technical services at Dentons Pension Management, said he was "disappointed" the decision had not been reversed.

Aegon's head of pensions Kate Smith agreed, saying: "We expect few people will be aware of the risks they’re running by continuing to make pension contributions, once they’ve begun accessing their savings.