Advisers back MPAA reform amid Covid-19

Advisers back MPAA reform amid Covid-19

More than one in eight advisers want to see the money purchase annual allowance reformed, after the coronavirus crisis highlighted how it can be an “unfair punishment” for savers.

According to AJ Bell, out of 292 advisers surveyed, more than two in five (40 per cent) want to see the MPAA scrapped altogether, while 9 per cent would support a temporary pause to this annual allowance during the current crisis.

Almost a third (30 per cent) want to see the MPAA increased back to £10,000, the level it was before the government cut it to the current level of £4,000 in 2017.

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.

Tom Selby, senior analyst at AJ Bell, said even before Covid-19 hit, the MPAA was seen as an “unfair punishment” for savers who want to access taxable income from their pension pot.

Mr Selby added: “During this crisis many more over 55s will be facing salary cuts or joblessness, while others will need to use their savings to help loved ones struggling to make ends meet.

“In such an environment, hitting people with a 90 per cent annual allowance cut for taking even £1 of taxable income from their pension feels deeply unjust.”

According to previous research from AJ Bell, one in 10 over 55s had accelerated plans to access their pension pot due to financial strains felt by the ongoing pandemic, with this expected to increase as government support is withdrawn.

Mr Selby said: “While there are various easements to the MPAA the government could consider to help hard-pressed savers, the simplest would be to scrap it altogether.

“This could then mark the beginning of a radical pensions reform agenda, with the aim of simplifying the unnecessarily complex tax rules savers have to navigate and encouraging more people to save for their financial future.”

FTAdviser reported in May that the MPAA has caused problems for advisers throughout the Covid-19 crisis as they looked 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.

For example, one adviser explained how his client had no other option but to use the flexibility of his pension to be able to get access to his funds, but meant he triggered the MPAA and will now only be able to top up his pension by a maximum of £4,000 each year.

What do you think about the issues raised by this story? Email us on to let us know.