“The government’s response to the consultation on the money purchase annual allowance (MPAA) reduction acknowledges all the issues with the policy. However, they have determined to forge full steam ahead leaving us with another example of a policy that needed more time for careful thought.
“There are other ways to minimise recycling and the government also acknowledged this in their response. However, they said to abandon the MPAA now and consider a new approach would require too many new processes and its simpler to just keep the MPAA. It seems they’ve decided to go down an easier route, even if it’s not the right one, instead of taking time to properly consider alternative routes.
“Indeed, by confirming the MPAA, the government have held on to a proposal that is at odds with the current trends developing in the retirement market and the spirit of pension freedoms. The budget documents show revenue from pension withdrawals was £1.5 billion in 2015-16, substantially more than the £0.3 billion estimate. It’s hard to justify this further tinkering, which may inadvertently penalise individuals that want to continue funding pension contributions in their late 50s and beyond after they have flexibly accessed some money purchase income.
“The government also acknowledge that their estimate that only 3% of over 55s are likely to pay more than £4,000 next tax year is likely to be inaccurate. In our consultation response we pointed out our Freedom of Information request revealed they are unable to identify the number of individuals both accessing and saving into their pension, so the Government’s assessment of the impact of the MPAA is a best guess estimate.
“The good news is there are lots of things people can do to plan ahead. Taking tax free cash, for example, will not trigger the £4,000 money purchase annual allowance. Nor will anyone already in drawdown before April 6 2015 see their annual allowance reduced, provided they remain within capped drawdown limits. They should also consider using other assets to fund income other than their pension fund.”