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Budget 2017 comment on reduction of Money Purchase Annual Allowance

The government has confirmed the Money Purchase Annual Allowance (MPAA) will reduce from £10,000 a year to £4,000 a year from 6.4.17.

  • The MPAA restricts the payments which can be made to a pension when an individual has ‘flexibly accessed’ their benefits. This includes people using UFPLS or taking an income from flexi-access drawdown – although not those who just access their tax-free lump sum.
  • The Government is concerned there are significant sums being lost to the exchequer through recycling. However there is little in the way of research or statistics to back that up.
  • We do know that many more people are working longer and intend to work longer, perhaps on a part-time basis. Our most recent wave of research shows 52% of over 50s intend to work part-time in retirement, with 4% expecting never to stop working full-time.
  • This increasingly flexible approach to work and retirement is one of the huge benefits of pension freedom – the ability to combine the appropriate level of flexibility and certainty from a pension pot to match changing needs as people move through retirement. It also allows people to access their pension pot at relatively young ages, for example 55-60, if they have a specific need, for example to pay off expensive debt or to tide people over who have been made redundant. Reducing the MPAA restricts the freedom available for people in these kind of circumstances.

Andrew Tully, pensions technical director, Retirement Advantage commented: ‘The wide scale pension changes introduced from April 2015 were designed to give people much more freedom over how and when they can withdraw their pension pot. This restriction to the Money Purchase Annual Allowance is a significant restriction to that freedom. People will need to carefully consider before they take benefits if there is a possibility they or their employer may want to make future pension contributions above a relatively low limit of £4,000 a year.

‘However people’s circumstances change so it isn’t always possible to know what the future may hold, and I can see people being caught out by this change. It greatly restricts the ability to alter plans as you move through retirement.’