Calls for MPAA to be raised may overlook root of economic inactivity

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search sponsored by
Calls for MPAA to be raised may overlook root of economic inactivity
Recent research by the Chartered Management Institute found that despite the shifts in society and the workplace, ageism remains alive and well. 
ByReporter

The government has called on older people to reenter the labour market to help boost economic activity, but has this generation been disincentivised by the very regulations designed to give them greater freedom and choice over accessing their pensions? 

If chancellor Jeremy Hunt wishes to succeed in bringing back older workers, he should consider reforming some of the “perverse pensions legislation” such as the money purchase annual allowance that may discourage many from going back to work, according to Quilter head of retirement policy Jon Greer.

“Under current legislation, any individual who accesses their pension flexibly triggers the MPAA, with the effect of reducing their annual allowance from £40,000 to £4,000 and thereby limiting their capacity to save into a pension once they return to work,” he said. 

The MPAA was intended to prevent wealthier individuals from recycling their tax-free cash into new pension arrangements.

“I don’t think that’s actually happened. The rule is very clear and if you’re recycling tax-free cash, it’s pre-planned,” Greer said. 

“The MPAA should be restored to the pre-2017 level of £10,000 per annum, which would alleviate the risk of hitting the MPAA for most people and remove the clear disincentive for older people to go back to work.”

Cost of living is catching people out

Older workers are perhaps right to be concerned about the low threshold, when government data shows that one-quarter of pension savers over the age of 55 contributed more than £4,000 a year to their pensions in 2020-21, according to AJ Bell. 

Official figures reveal that £3.6bn of flexible pension withdrawals had been made by more than 500,000 individuals between April 1 and June 30 2022 – a 23 per cent increase on the same period in 2021.

The MPAA should be restored to the pre-2017 level of £10,000 per annum, which would alleviate the risk of hitting the MPAA for most people and remove the clear disincentive for older people to go back to work Jon Greer, Quilter

This prompted AJ Bell to write to the Treasury to warn that rising inflation risked forcing people to dip into their pensions earlier and to call for the MPAA to be raised to £10,000.  

“There is mounting evidence that squeezed savers are being forced to turn to their pension pots to make ends meet during the cost of living crisis,” said AJ Bell head of retirement policy Tom Selby.

Inflation is the most likely driver, but many parents and grandparents may be dipping into their pension to help their families cope with rising prices, he added.

PAGE 1 OF 3