Money purchase allowance to be cut retrospectively

Money purchase allowance to be cut retrospectively

The former pensions minister has branded Government plans to reinstate a cut to pension tax relief as ‘outrageous’.

Steve Webb, policy director at Royal London, has spoken out against a government decision to slash the money purchase annual allowance (MPAA) from £10,000 to £4,000 a year, which the Treasury yesterday revealed would go ahead.

Webb condemned the decision by the Treasury, which confirmed the reduced allowance would be backdated to be effective from the start of the current tax year on 6 April 2017.

The MPAA refers to the amount that savers can put back into a pension once they have started taking an income from it.

The move to cut the annual allowance was first raised by chancellor Philip Hammond last November, with plans to implement the reduction from the new tax year in April.

The proposal attracted widespread criticism from the industry with Steve Webb saying at the time that it the reduction ‘flies in the face of efforts to make retirement more flexible’. But the unpopular measure was believed to have been shelved when it was left out of April’s Finance Bill ahead of the General Election.

The Treasury yesterday said: ‘Where policies have been announced as apply from the start of the 2017/18 tax year or other point before the introduction of the forthcoming Finance Bill, there is no change of policy and these dates of application will be retained.’

It means that Parliament will debate the policy when it reconvenes and, that if the proposal is approved, it will be implemented and backdated to April.

Webb says: ‘It would be outrageous for Parliament to be debating in September and October what tax allowances will be effective from 6 April 2017. Cutting the MPAA is an unnecessary measure in the first place but it is particularly unacceptable to do so with retrospective effect.’

The announcement comes just a day after the Financial Conduct Authority expressed concern about the public’s mistrust of the pension system; some experts believe this latest move could further damage the reputation of the industry.

Jon Greer, head of retirement policy at Old Mutual Wealth, says: ‘Uncertainty and changes to pensions tax rules are too often bedfellows. We urge the new government to carefully consider its future policies and halt this unpalatable ride.’

Greer adds the curb was ‘regressive’ and at odds with the shift to people retiring more gradually and having a more flexible transition into retirement.

Sean McCann, chartered financial planner at NFU Mutual, says: 'This has been disastrously handled and it means thousands of people will sleepwalk into a significant tax bill. It's yet another layer of complexity that will put people off saving for fear of falling foul of the rules.'  
 

 


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