In the rush to get the Finance Bill through before the dissolution of Parliament, the Government dropped a number of clauses from the Finance Bill. There were two important changes that affect pensions.
Employer sponsored pensions advice allowance.
This is £150 per employee per year and up to this amount can be paid by an employer for financial advice given to a member of staff. Amounts above this are taxable as p11d payments. This was previously due to increase to £500 per year, but this measure was dropped from the Bill and it is not clear if it will be included in a new Finance Bill.
MPAA Reduction from £10,000 to £4,000 per input period.
This reduction in the MPAA (Money Purchase Annual Allowance) was to be effective from 6 April 2017. This would affect anyone who has accessed a pension flexibly and withdrawn more than the PCLS (Post Commencement Lump Sum). (Small pots under £10,000 are excluded). Pension contributions in excess of the MPAA are subject to an income tax charge at the individual’s highest marginal rate. The draft legislation also included an element of retrospection as the reduced limit would apply to anyone who had already accessed their pension in this way prior to 6 April 2017.
The dropping of this clause has caused some confusion. Treasury Minister Jane Ellison confirmed that a Conservative Government would intend to reintroduce the measure in a later Finance Bill. What is not clear however is whether the reduced allowance will apply for the whole of the current tax year, backdated to 6 April 2017 or would be from a future date. It is also possible that there could be a change of Government and the measure may be dropped or amended in other ways.
Until this is clarified it is safest to abide by this proposed change to the MPAA, that the allowance for this year could be reduced to £4,000 which would mean that any contributions made in excess of this would be taxable. Individuals can then decide whether to make or receive the contributions in excess of this anyway with the possibility of a tax bill or to limit contributions to £4,000 until the matter is clarified.
Director of Public Policy, LEBC
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