Pensions are complicated enough for providers, advisers and clients to administer and understand.

The constant tinkering is negatively impacting the perception of pensions and we are in danger of putting people off long-term saving if it continues.

Once again everyone finds themselves in limbo as the expected reduction to the money purchase annual allowance (MPAA) from £10,000 to £4,000 missed being included in the Finance (No.2) Bill 2017. The changes were due to come into effect on 6 April 2017, but due to the snap General Election being called, the Finance Act was hurried through without this and therefore leaves the MPAA at £10,000. But with everyone knowing that is more of a technicality, the intention was and is still there, it is just the paperwork and rubber-stamping that hasn’t been done.

This is a highly unsatisfactory situation for advisers and their clients, despite it only impacting a small number of people. For one thing, the changes have caused media coverage and now the ability to contribute while drawing benefits is better known. This has a negative impact on how pensions are perceived and contributes to the view that they constantly change.

The types of clients that are utilising the MPAA are more likely to have a SIPP with a larger monetary amount and use a financial adviser for their retirement planning, so it impacts this part of the market more.

For financial advisers working in the pension sector, they will already have alerted their clients to the MPAA changes that were due to come into force. Their advice may have been to opt out of some schemes or to cut back on the pension contributions being made because of the MPAA cut. They will now find themselves in a situation where they have to go back to these clients again, explain the issues with the snap election and Finance Act and update them.

The really worrying thing is that none of us know what might happen, depending on the snap election result. It is believed that the changes will be included in the next Finance Bill and while it would be unusual for their to be a retrospective tax charge, you cannot guarantee it.

Advisers really are caught between a rock and a hard place. Do they use £10,000 or £4,000?

This will be a firm specific decision and from what we have heard, the responses are mixed, though my thought would be to only pay up to £4,000 – if it is not changed then a top can be made at a later date but it’s better to be safe than sorry.

The frustrating thing for SIPP operators is that everyone has put a lot of effort and resources into changing their systems and documentation to take account of the reduction to £4,000, incurring costs and man hours.
They are now having to go back and change them again, ensuring all documents, systems and websites are correct. This constant tinkering impacts the bottom line of firms and risks inconsistencies creeping in.

Elaine Turtle, Director, DP Pensions