You only need imagine the client who had to access their pension to pay down debt or fund a divorce settlement to know some unfortunates will be caught out by the MPAA change, says Andrew Pennie.
So we recently saw Chancellor Philip Hammond take to his feet to deliver the first of his Autumn Statements. On the same day he announced it would also be his last – although, just to avoid any confusion, he hasn’t decide to jump ship, but was instead referring to the fact there will now be an Autumn Budget and a Spring Statement. All clear? Excellent.
One of the announcements the Chancellor made concerned the intention to reduce the Money Purchase Annual Allowance (MPAA) from £10,000 to £4,000 from next April. The rationale is that some earners aged 55 and over may be obtaining double pension tax relief by recycling their pension money.
I have mixed views on this change and, if I am honest, I reckon it is rather over-engineered. On the one hand, it is only right that, if the Treasury can gather an extra £70m in tax during the 2017/18 tax year, it should. On the other, that is not such a good thing if it impacts people’s views on long-term saving – yet again.
It is this constant meddling that means there is a lack of trust and confidence in the pension system and, having just implemented pension freedoms, to already be changing the rules is plain unhelpful.
It is really important that the adviser community and providers respond to the Treasury’s call for views on whether the proposed level of MPAA would impact on the roll-out of automatic enrolment or disproportionately affect particular groups. It is only by putting our views across that we will impact decisions – even if, ultimately, the decision turns out to be not what we would want, at least we have provided input.
A big concern for me is that many clients will have based their retirement decision on the current rules and perhaps decided to take some pension monies out, with the knowledge they can rebuild these in time, while they continue to work, but will now be limited to £4,000 a year of tax-relievable contributions and not £10,000.
You only need to imagine the client who had to access their pension to pay down debt or fund a divorce settlement to understand there are going to be some unfortunate people who will be caught out by this change.
The MPAA change certainly causes confusion and goes against the previous Chancellor’s intentions. It also adds considerable cost to providers who will have to amend procedures to identify the growing number of people caught by the reduced allowance and go through a review process of their literature, amend it and then reprint it.
If the proposals do go ahead, let’s face it – it will be the end-client who will pay at the end of the day.
Andrew Pennie is head of pathways at Intelligent Pensions
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