The government’s decision to delay legislation reducing the money purchase annual allowance (MPAA) to £4,000 from £10,000 is likely to see advisers take a cautious approach with recommendations to their clients.
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.
Suffolk Life, part of the Curtis Banks Group, undertook a survey following last week’s announcement that the MPAA reduction was one of several measures removed from the Finance Bill due to time pressures introduced by the General Election on 8 June.
The government has indicated that it has not changed its mind about the reduction but it is unclear when the change would take effect if it is written into legislation at a later date.
The SIPP provider found that 39 per cent of the 151 advisers who responded to the survey will advise their clients to contribute no more than £4,000.
A similar number – 44 per cent - will only allow their clients to contribute more than £4,000 on the understanding that they may face a retrospective tax charge in the future.
Just 17 per cent of advisers said that they would be willing to allow their clients to contribute over £4,000 by making the assumption that the MPAA is now £10,000.
Suffolk Life’s pension technical manager, Jessica List, said: “The survey results showed a cautious, mixed reaction from advisers, indicating that there’s no clear view of what the government might do next, following last week’s announcement.
"Advisers have been left in an incredibly difficult position: they don’t want their clients to miss out on a potential window of opportunity but understandably the majority don’t want to risk advising them to do something which could later incur a tax charge.”
Commenting on the omission of the MPAA cut from the Finance Bill, 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."
Tom McPhail, head of policy at Hargreaves Lansdown, says his firm is advising clients to stick to the £4,000 limit.
