The measure to reduce the MPAA from £10,000 to £4,000, announced in the Budget and due to be confirmed in clause 12 of the Finance Bill, has been dropped, according to a note on the parliament website.
The MPAA is the amount a person who has already begun drawing on their pension can pay in one year back into their retirement savings without a tax charge applying.
Steve Webb, director of policy, Royal London, said: "The situation is confused. Technically, the £10,000 allowance is still in place but IFAs would be unwise to advise their clients to make use of the £10,000 MPAA allowance as there is always the danger that the Conservatives, if re-elected, would introduce the change retrospectively."
Jon Greer, pensions expert at Old Mutual Wealth, said: “The hiatus on the reduction to the money purchase annual allowance causes confusion, particularly since the policy has been implemented since the beginning of April. While placing part of the finance bill on hold was inevitable with the announcement of the snap election, the government are reducing it to the bare bones in order to get it through.
“People will have already started planning for this change and a sensible approach would be to continue to do so as it may be backdated and still be applicable from April 6 this year.
“However, the cut to the MPAA is totally at odds with the direction of travel in the retirement market and those planning for retirement would be relieved if it became a casualty of the finance bill.
“Giving people the freedom to withdraw retirement income as and when required has made a flexible transition to retirement possible. Many will prefer to phase into retirement, reducing their working hours and topping up income with pensions.
“But under the MPAA, those that chose to top-up income with a retirement fund and then later make contributions during period of work could be punished by this regressive curb on the standard annual allowance.”
The cut to the MPAA was a highly unpopular measure.
In a pre-Budget comment, Tom Selby senior analyst, AJ Bell, said: “The proposed cut to the MPAA flies in the face of the pension freedoms. People are being encouraged to use their savings flexibly and yet when they do so they are punished with a drop in their annual allowance from £40,000 to £4,000.
“It is not just the super-rich who will be affected – large chunks of middle Britain, many of whom might need to catch up for years when they have failed to save, will also be caught.
"“We’d like to see the Chancellor take a step back from this proposal and look at other measures that would be economically more beneficial to the Treasury and fairer to consumers.
"For example, scrapping pension carry forward for money purchase contributions for anyone who has accessed their pension and creating a ‘universal MPAA’ when a pension is accessed in any way (including tax-free cash and annuity purchase) would be a better solution.”
Similarly another announcement in the Budget, a cut in the dividend allowance from the current £5,000 to £2,000 from the new tax year in April 2018, has also been dropped.
