As part of his Spring Budget, chancellor Jeremy Hunt said the MPAA will be increased from the current level of £4,000 to £10,000 from April 2023.
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.
It is currently set at £4,000 after the government cut it from £10,000 in 2017.
Tom McPhail, director of public affairs at the Lang Cat, said: “This looks like a victory for common sense and for ordinary savers who were increasingly at risk of being caught by a restriction only ever intended for the wealthy and those who sought to abuse the system."
How have the lifetime allowance, annual allowance and money purchase annual allowance changed since 2010?
|Year||Lifetime allowance||Annual allowance|
Money purchase annual allowance
Source: AJ Bell
Earlier this month (March 2), a group of 17 providers, consultants and professional bodies banded together and wrote to the Treasury asking the government to restore the MPAA to its previous level of £10,000 in the Budget.
In a letter sent to Andrew Griffith MP, economic secretary to theTreasury, the industry group said many over 55s have tapped into their retirement savings and are now restricted in their ability to rebuild these savings.
The industry group suggested that based on data from the City watchdog and the Office for National Statistics, the MPAA is “already a possible issue for hundreds of thousands of workers” over the age of 55.
McPhail added: "The Lang Cat was able to bring together a large group of influential firms and industry bodies to lobby the Treasury to increase the MPAA. As well as this change in the allowance, we’d now like the Treasury to work with the industry to refine the rules.
"All of the signatories to the open letter sent to the Treasury have shown they are willing to work together constructively to improve consumer outcomes.
“The existing model that prevents tax free cash recycling offers a useful template: you could for example have a rule meaning tax charges would only apply if there were a significant increase in money purchase contributions relative to previous years; or tax charges wouldn’t apply if someone joined an auto-enrolment scheme on the standard contribution terms.
"We’d welcome the opportunity to discuss such solutions with the Treasury”.