Planned cuts to the amount that pensioners can save have been set aside in the run-up to the general election.
Designed to stop people repaying tax-free lump sums which they had already withdrawn from their pot, the amendments theoretically came into effect on 6 April 2017. For those who had already taken advantage of the “pension freedoms”, the Chancellor intended the money purchase annual allowance (MPAA) to fall from £10,000 to £4,000.
The changes were largely criticised, however, being branded as unfair and adversely affecting those who are choosing to use their savings in a flexible way.
Tom Selby, the Senior Analyst of AJ Bell, took this view. Commenting on the cuts before the Budget was delivered, Selby highlighted how the changes would impact a wide range of people. “The proposed cut to the MPAA flies in the face of the pension freedoms. People are being encouraged to use their savings flexibly and yet when they do so they are punished with a drop in their annual allowance from £40,000 to £4,000.
“It is not just the super-rich who will be affected – large chunks of middle Britain, many of whom might need to catch up for years when they have failed to save, will also be caught.”
Despite them having theoretically come into force already, changes made to the Finance Bill today (25/04/17) mean that the allowance cuts will be put on hold. Other clauses to be left out of the bill ahead of the election include the introduction of the Pension Advice Allowance, as well as cuts to the dividend allowance.
Commenting on the amendments was Steve Webb. The former pensions minister, now director of policy at Royal London, stated that the cuts had not been ruled out completely.
“The situation is confused. Technically, the £10,000 allowance is still in place but IFAs would be unwise to advise their clients to make use of the £10,000 MPAA allowance as there is always the danger that the Conservatives, if re-elected, would introduce the change retrospectively.”
