In Focus: Retirement Income  

Govt must scrap MPAA, Quilter says

Govt must scrap MPAA, Quilter says

The government must revisit the money purchase annual allowance in the light of Covid-19, a senior pensions specialist has said.

Jon Greer, head of retirement policy at Quilter, said the Work and Pensions select committee needed to "take a good look" at the MPAA, especially in the current economic climate.

Greer said: "Someone struggling to make ends meet as a result of the pandemic may well be tempted to tap into their pension for a source of income, but may not realise that their money purchase annual allowance will be reduced to £4,000.

"This effectively punishes people for a loss of earnings as it severely limits their ability to save for retirement in the future. It’s time this archaic rule was scrapped in favour of a general anti-abuse approach."

Earlier this year, the Association of British Insurers and others had called on the government to scrap the MPAA in the March Budget. 

At the time, the ABI said it should be ditched so that savers who had dipped into their pensions to cover pandemic-related expenses should not face financial penalties as a result.

But pensions emerged untouched by Budget changes - nor were there any pension changes on April 23 - the so-called 'Tax Day'.

Greer's comments came in the wake of the latest Work and Pensions select committee's evidence session on accessing pension savings. One of the topics discussed was reforms to the advice allowance.

As reported by FTAdviser earlier this week, Chris Brooks, head of policy at Age UK, told the committee that increasing the amount of cash savers are allowed to take from their pension pot to access advice would not be beneficial to most savers, due to supply issues with advisers.

You can take FTAdviser's poll on reforms to the advice allowance HERE

Responding more widely to the committee session, Greer said: "Pension freedoms provided people with unprecedented choice in planning their own retirement.

"For many, navigating their options will be one of the most important financial decisions they make in their life, and this decision could be the difference between a comfortable retirement or struggling to make ends meet.

“Navigating pension options is no easy feat, and one which won’t be achieved without access to support, advice and guidance. But we know that too few people receive advice, and too few take up the support on offer from Pension Wise."

He said it was clear from the evidence provided to the committee that more must be done to nudge pension savers to take up guidance.

However, he added there remains the question of when the most effective point in the customer process was to nudge people towards guidance. 

Greer explained: "Typically, when people come to access their pension pots – and particularly small pots – in principle they have already got a very set idea of what they want to do with that money and there is a danger they’ll just see a Pension Wise appointment as another hurdle."