MPAA causes problems during virus crisis

MPAA causes problems during virus crisis

Industry experts have called for the money purchase annual allowance to be reformed, saying the coronavirus crisis exacerbates issues for financial advisers and highlights why the allowance does not work.

Advisers and providers alike have called for the MPAA, which is currently £4,000, to be increased to at least £10,000 so savers are not hit with significant tax bills in the post-Covid-19 future when they have the capacity to increase pension contributions.

The MPAA, introduced in 2015 to coincide with pension freedoms, is the amount a person who has already begun drawing on their pension can pay back into their retirement pot each year without incurring a tax charge.

It was introduced to stop people recycling cash through their pensions.

Originally set at £10,000, the allowance was cut to £4,000 in 2017.

The MPAA has caused problems for advisers throughout the Covid-19 crisis as they look to gain access to cash for their clients without triggering the allowance and restricting the amount they can save into their pensions in the future.

Paul Stocks (pictured), financial services director at Dobson & Hodge, told Financial Adviser he had never had an issue with the MPAA before the current crisis, but is now restricted by the allowance.

Mr Stocks explained how one client had no other option but to use the flexibility of his pension to be able to get access to his funds, but this means he will trigger the MPAA and will only be able to top up his pension by a maximum of £4,000 each year.

He said: “While the client does not see this as a particular issue, I am more concerned as he is now tied with one arm behind his back for the rest of his pension life.”

While Mr Stocks stopped short at calling for the MPAA to be scrapped, he would like to see it raised back to £10,000.

Ian Browne, retirement expert at Quilter, has been trying to raise awareness of this issue given that people are increasingly looking to dip into their pension in response to the Covid-19 crisis.

He said: “This time next year these people may be looking to top their pension back up, but they will find they cannot do that because they have triggered the MPAA.”

Mr Browne said he would like to see the MPAA scrapped or at the very least increased to a higher level.

“The MPAA is a trapdoor and for people who are unaware of it it is so easy to trigger but has significant consequences.

“It is way too restricted and ultimately I would like to see its removal, but I think that is unlikely from a government perspective.

"However, if they were able to take the allowance back up to £10,000, as it was previously, it would certainly be a welcome measure.”

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