MPAA to reduce to £4,000 from 6.4.17
Unfortunately, awareness levels of the MPAA among the general public is low, so it’s inevitable people are going to be caught out by this change and face a hefty tax charge if they’ve paid in over the allowance.
HM Treasury has confirmed it will legislate to cut the Money Purchase Annual Allowance (MPAA) to £4,000, which will apply from 6th April 2017. The limit was previously £10,000.
The MPAA was introduced following the pension freedoms in April 2015, and restricts the amount a person can contribute to a defined contribution pension if they have accessed their pension savings flexibly.
Retirement Advantage research among people who have used the pension freedoms suggests 37% who have accessed cash from their pensions have continued to pay into a pension, while 19% say their employer has. Worryingly, 67% of these people are completely unaware of the MPAA.
Andrew Tully, pensions technical director, Retirement Advantage commented: ‘There was always a risk government would legislate retrospectively and reduce the limit to £4,000 in this tax year. Our research shows a significant number of people are taking full advantage of the flexibilities while continuing to contribute to a pension. Unfortunately, awareness levels of the MPAA among the general public is low, so it’s inevitable people are going to be caught out by this change and face a hefty tax charge if they’ve paid in over the allowance.
‘One of the key benefits of the pension freedoms was the ability to phase withdrawals to fit in with the increasingly flexible approach many people have to later life – taking sums to top up other income, or as a bridging pension until state benefits kick-in. Now the freedom to withdraw funds from 55 needs to be accompanied by flashing warning lights, although as many will cash-in without advice they may not be noticed until people are well past the stop sign.’