Pension experts unhappy with Hammond over MPAA

Pension professionals are unhappy that the Chancellor has ploughed ahead with the cut of the Money Purchase Annual Allowance. Many professionals working in the pensions sector had called for Philip Hammond to abandon the plans outlined in November but he instead pushed them through yesterday.The Budget confirmed that the MPAA will be cut from £10,000 to £4,000, as originally trailed in the Autumn Statement. The MPAA restricts the level of pension contributions that can be made by over-55s who have accessed pensions flexibly in particular ways under pensions freedoms.Jessica List, Pensions Technical Analyst, Suffolk Life, said: “It’s the worst of both worlds: it makes things less flexible for affected investors and further undermines the public’s trust in pensions, whilst being minor enough that it barely makes a difference to the Government in financial terms.”David White, Zurich’s managing director of life and pensions, said: “We are disappointed the Government is moving ahead with its plan to reduce the Money Purchase Annual Allowance. Continual tinkering with pensions causes confusion among consumers and makes it hard for them to make long-term decisions for their retirement.”David Robbins, senior consultant at Willis Towers Watson said the pensions freedoms had created a risk that some might divert part of their salary into a pension and take it straight out again – so they get a tax and NICs saving without doing any actual retirement saving.He said: “The Government opened this loophole itself and has not produced any evidence that it is being exploited, but it understandably wants to limit the damage. Cutting the MPAA from £10,000 to £4,000 limits the maximum annual revenue loss per person from about £2,500 to about £1,000. If over-55s started exploiting this on a serious scale, a £4,000 MPAA would not be the end of the matter. But this might just be a short-term sticking plaster if the Treasury is planning to look again at root-and-branch changes to pensions taxation.”He said: “It is hard to see why ministers are so confident that a £4,000 MPAA will not hamper the successful rollout of automatic enrolment: under a pension scheme quality test used by many large employers, contributions are set to exceed £4,000 for people earning over £44,444 from April 2019.“The announcement confirms that ‘there are no changes being made in how the MPAA will operate’. This means that people with access to drawdown can still take 25% of their pot tax-free without triggering the MPAA, as long as they don’t take a taxable income from the rest. Meanwhile, smaller withdrawals that are 25% tax-free and 75% taxable can trigger the MPAA.”Chartered Financial Planner Nicola Watts APFS Chartered FCSI, director of Jane Smith Financial Planning in Olney, was among those unhappy about the change.She said: “Although it was good to see that there has been little of the large scale changes to pensions that we have seen in previous years, it’s disappointing to see the possible reduction in the Money Purchase Annual Allowance announced in the Autumn Statement will now proceed.“My one hope for the Budget was that this proposal would be scrapped or at least further time given towards consultation on the potential impact of the reduction from £10,000 to £4,000.”Chartered Financial Planner Carl Lamb APFS, managing director of Almary Green in Norwich, said: “Although this reduction in the MPAA is as expected, there were those who hoped that the Chancellor would reconsider this measure. With Government wanting individuals to increasingly take control of their future retirement income, it would have been good to see a reversal of the trend to reduce both the Lifetime Allowance and the MPAA to give those who can save for retirement better options.”

Pension experts unhappy with Hammond over MPAA

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