LEBC Laments The Money Purchase Annual Allowance Cut

July 2017
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The Treasury has confirmed that the cut in the Money Purchase Annual Allowance (MPAA) will be backdated to 6 April 2017.

This affects those who have flexibly accessed their pension savings. This includes individuals who have :

  • taken an uncrystallised funds lump sum (UFPLS)
  • taken income under a flexi access drawdown plan (not tax free cash)
  • taken more than the maximum drawdown available under a capped drawdown plan

Those with small pots of £10,000 or less are excluded. 

Those affected will be eligible for tax relief on future pension savings only up to £4,000 per tax year. The previous limit was £10,000. Don’t forget that this includes pension contributions paid by the individual and those paid by the employer. Any employer or personal contributions paid in excess of this new limit will now be taxable.

This measure was dropped from the Finance Bill when the General Election was called. Pleas were made to The Treasury then, to clarify whether it intended to apply this retrospectively or not. It is regrettable it did not do so but have now confirmed the retrospective application of this change three months later.

LEBC has advised its clients that there was a possibility that this measure would be backdated to April 2017. Any person subject to MPAA, who is likely to have contributions paid on their behalf that are above the £4,000 allowance should now review this with their adviser as the excess paid into a pension over the new limit will be taxable at their marginal rate of income tax, clawing back the tax relief granted.

Below is a statement released by Kay Ingram, Director of Public Policy at LEBC:

“It is disappointing that the Government did not confirm in its Manifesto that it would press ahead with this change, so that individual’s considering flexible access could have made their decisions with a greater degree of certainty. This restriction on future pension tax relief means that those who need access to their pension funds but wish to remain in the workforce and to add to their pensions later, should take advice from an independent adviser as some methods of gaining access to their funds will be exempt from this restriction whereas others are not.”

"Government talks about encouraging older workers to stay in the workforce for longer to enable them to contribute their experience and taxes to the economy. For many older workers, now waiting till their late 60s to receive their State pension, accessing some of their private pensions early enables them to work part time and prepare a glide path to retirement. Measures such as the MPAA cut raise little in tax but put obstacles in the way of flexible working for this age group. More joined up thinking between the Treasury and the Department of Work and Pensions would be welcome.”

Please remember, no news or research item is a recommendation or advice to buy. LEBC Group Ltd is not responsible for accuracy and may not share the author’s views. If you are unsure of the suitability of any investment or product for your circumstances please contact an adviser. The Financial Conduct Authority does not regulate tax planning. Tax rates and allowances may change in future.

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