A substantial cut in the yearly tax-free allowance available to pensioners will be applied retrospectively.
The government has today (13 July) confirmed all Finance Bill 2017 policies announced pre-election and due to start from April 2017 will be effective on that date.
This means savers who have accessed their pension from age 55 will see their annual tax-free allowance cut from £10,000 to £4,000 for the 2017/18 tax year.
The Finance Bill introduced in March 2017 provided for a number of changes to tax legislation that were withdrawn from the Bill after the calling of the general election in May.
The Treasury confirmed at the point they were withdrawn that there was no policy change and that these provisions would be legislated for at the first opportunity in the new parliament.
In a statement, Mel Stride, the financial secretary to the Treasury, confirmed this position today.
“The government…expects to introduce a Finance Bill as soon as possible after the summer recess containing the withdrawn provisions.
“Where policies have been announced as applying from the start of the 2017-18 tax year or other point before the introduction of the forthcoming Finance Bill, there is no change of policy and these dates of application will be retained.
“Those affected by the provisions should continue to assume that they will apply as originally announced.”
Tom Selby, senior analyst at AJ Bell, said today’s news will come as a bitter blow to thousands of retirees who have used the pension freedoms to access some of their retirement pot from age 55.
“Many had hoped the general election would put a legal spanner in the works and force policymakers to, at the very least, delay reducing the MPAA until April 2018.
“These hopes have now been dashed by the government.
“We do at least have clarity on what the MPAA is for 2017/18, which means advisers and individuals can plan with a degree of certainty.
“But the reality is the UK pension tax regime is a mess, bedevilled by complexity and confusing even to seasoned industry experts.
“Rather than continuing to tinker with a broken system, the government should carry out a root and branch review aimed at simplifying the rules and encouraging more people to save for retirement.”