Pensions  

Call to scrap MPAA as pension withdrawals hit £2.4bn

Call to scrap MPAA as pension withdrawals hit £2.4bn

The industry has renewed calls for the money purchase annual allowance to be scrapped, after HM Revenue and Customs revealed pension withdrawals increased by 6 per cent.

Data published by HMRC today (January 29) showed £2.4bn was withdrawn from pensions flexibly in the last quarter of 2020, a 6 per cent increase from £2.2bn in the same period in 2019.

The total value of flexible withdrawals from pensions since pension freedoms were introduced in 2015 has now exceeded £42bn.

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The average amount withdrawn was £6,600 in the quarter, a 3 per cent decrease from £6,800 in Q4 2019.

While average withdrawals have been falling steadily, there is normally a peak in Q2 as it coincides with the beginning of the new tax year.

But according to HMRC, the impact of Covid-19 caused a reversal of this trend last year.

The number of people accessing their pension year-on-year increased by 10 per cent to 360,000 (327,000 in Q4 2019), a 4 per cent increase on the previous quarter.

The latest data has seen industry experts voice their concerns about the MPAA and called for it to be scrapped in light of the coronavirus pandemic.

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.

Andrew Tully, technical director, Canada Life said: “This continued growth in the number of individuals accessing their pensions implies that we are seeing more and more working people look to their pension pot to manage their expenses or cover unexpected costs. 

“It is absolutely essential that anyone choosing to access their pension for the first time should be aware of a potential sting in the tail – the money purchase annual allowance. This is especially important for those of working age who want to continue paying into their pension. 

"With the current savings limit set dangerously low at £4,000 it could severely limit the amount you are able to save in the future. 

“Particularly given the impact of the pandemic, we need to consider a significant increase to the allowance or better still remove it altogether.”

Tom Selby, senior analyst at AJ Bell, also called on chancellor Rishi Sunak to review the MPAA.

He added: “We have seen the number of people accessing their pensions and total withdrawals rise, which is unsurprising given markets have recovered and so investors will feel more comfortable returning to ‘normal’ retirement income behaviour. 

“There is also likely to be some pent-up demand in the system following the drop in withdrawals we saw in the second quarter of 2020.”

amy.austin@ft.com

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