Share
Print
Print Share

Quilter calls on Government to relax Money Purchase Annual Allowance during Coronavirus to prevent unfair penalty for furloughed workers

01/06/2020

Quilter is calling on government to relax the Money Purchase Annual Allowance (MPAA) during the Covid-19 pandemic.

It has written to the Chancellor, Rishi Sunak, recommending a series of measures to avoid unfair pension tax penalties being imposed on people returning to work after this crisis.

Quilter is concerned those age over 55 may use their pension to cover a loss of earnings during the Covid-19 pandemic.  In order to prevent them suffering an unfair tax penalty when they return to work, it is calling on the government to:

  • Waive MPAA triggers for the 20/21 tax year so that people taking money from their pension during the crisis retain their normal annual allowance
  • Restore the MPAA to £10,000 a year to ease annual allowance concerns for the majority of workers
  • Consider replacing the MPAA with a general anti abuse approach once the pandemic subsides

The annual allowance is currently capped at £40,000 but a lower limit of £4,000 applies once someone aged over 55 accesses their pension, triggering the MPAA.

Quilter’s analysis of contribution rates shows that workers with earnings ordinarily of around £40,000-£50,000 and above can expect to be impacted in the future if they make a pension withdrawal. Some people may do this to top-up their income in the event they are furloughed or made redundant during the crisis.

When they return to work future annual pension contributions to money purchase arrangements over £4,000 would incur an annual allowance tax charge.

No MPPA trigger/annual allowance of £40,000:

 

Pensionable salary before lock-down

Contribution Rate

£40,000

£50,000

£75,000

£100,000

8%

£3,200

£4,000

£6,000

£8,000

10%

£4,000

£5,000

£7,500

£10,000

12%

£4,800

£6,000

£9,000

£12,000

 

MPAA triggers reduction to £4,000:

 

Pensionable salary following lock-down

Contribution Rate

£40,000

£50,000

£75,000

£100,000

8%

£3,200

£4,000

£6,000

£8,000

10%

£4,000

£5,000

£7,500

£10,000

12%

£4,800

£6,000

£9,000

£12,000

 

Auto-enrolment contribution rates are currently set at a minimum of 8% on ‘band earnings’ of between £6,240-£50,000 a year. It means someone on a salary of £50,000 making even the bare minimum contribution would use more than 87% of their annual allowance once they trigger the MPAA. Those wanting to save more than the minimum would almost certainly breach their annual allowance.

Quilter’s retirement planning experts are warning over 55s that triggering the MPPA now under the current rules could damage their long-term retirement prospects. They are urging those considering making their first pension income withdrawal during the crisis to speak to a financial adviser.

Jon Greer, Quilter head of retirement policy says:

“With millions of people being furloughed or made redundant, a huge number of people could be unfairly penalised. Those that use their pension to top-up their income now will see their annual allowance cut by 90% for the rest of their career once they return to work.

 “The Covid-19 pandemic is damaging career prospects today, but we must limit the long-term impact on our prosperity. We are calling for the relaxation of the MPAA so that nobody is  prevented from saving for a prosperous retirement due to this crisis.”

Ian Browne, Quilter retirement planning expert, recommends speaking to a financial adviser to avoid triggering the MPAA:

“People age over 55 that see their earnings curtailed during this crisis may be tempted to withdraw from their pension.

“But that could come with a devastating sting in the tail if it isn’t planned carefully.  Individuals could trigger the MPAA by taking just £1 of flexible income from their pension. That means for the remainder of their career they will be subject to a massively reduced capacity for pension contributions.

“If you do need to supplement your income at the moment and you are considering using your pension it would be wise to speak to a financial adviser to consider the best way to do this. Firstly, think about using cash savings set aside for a rainy day. Secondly, consider using other savings like an Isa, which you can still top-up in future if you make a withdrawal now.

“Finally, if you do consider accessing your retirement savings, find out if you have a pension from which you could make the withdrawal under ‘small pots’  payment rules, which would not trigger the MPAA.”

For more information contact

Michael Glenister020 7778 963807469 144535michael.glenister@quilterinvestors.com

Notes to Editors:

About Quilter plc:

Quilter plc is a leading wealth management business in the UK and internationally, helping to create prosperity for the generations of today and tomorrow.

Quilter plc oversees £95.3 billion in customer investments (as at 31 March 2020).

It has an adviser and customer offering spanning: financial advice; investment platforms; multi-asset investment solutions; and discretionary fund management.

The business is comprised of two segments: Advice and Wealth Management and Wealth Platforms.

Advice and Wealth Management encompasses the financial advice business, Quilter Financial Planning; the discretionary fund management business, Quilter Cheviot; and Quilter Investors, the Multi-asset investment solutions business.

Wealth Platforms includes Old Mutual Wealth UK platform and Quilter International, including AAM Advisory in Singapore.

The Old Mutual Wealth Heritage life assurance business was acquired by ReAssure Group Plc on 2 January 2020.

Since its IPO in June 2018, Quilter plc’s businesses have progressively rebranded to Quilter, as follows: 

  • Quilter Financial Planning (previously Intrinsic)
  • Quilter Private Client Advisers (previously Old Mutual Wealth Private Client Advisers)
  • Quilter Financial Advisers (previously Charles Derby Group)
  • Quilter Financial Adviser School
  • Quilter Cheviot
  • Quilter Investors
  • Old Mutual Wealth (becoming Quilter Investment Platform)
  • Quilter International (previously Old Mutual International)

This press release is for journalists only and should not be relied upon by financial advisers or customers.

Please remember that past performance is not a guide to future performance. The value of investments and the income from them can go down as well as up and investors may not get back any of the amount originally invested. Exchange rate changes may cause the value of overseas investments to rise or fall.

This communication is issued by Quilter plc.  Registered office: Millennium Bridge House, 2 Lambeth Hill, London EC4V 4AJ, United Kingdom. Registered number: 6404270.  Registered in England.