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Advisers voice protest over pension allowance cut

Financial advisers warn chancellor’s cut to 'money purchase annual allowance' will hit some people's retirement plans and won't raise much money.

Advisers voice protest over pension allowance cut

Financial advisers have warned the chancellor’s move to cut the money purchase annual allowance (MPAA) to £4,000 could hit retirement plans for people who have taken advantage of the pension freedoms. 

The MPAA restricts the amount of money people can put back into a defined contribution (DC) pension once they have started taking benefits from their savings under the pension freedoms.

It was introduced in April 2015 at £10,000, but yesterday chancellor Philip Hammond said it would be cut to £4,000  next April. The government also published a consultation to understand the impact of such a change. 

Karen Barwick (pictured), director of Newcastle-based Laurus Associates, said cutting the MPAA would mean people who had already accessed their savings may not be able to meet their plans to build their retirement pot up again.

Barwick said the change created some confusion about the government's intentions around pension freedoms. 

'It is another one of these things you have to remember when advising clients that, when it comes to the spirit of making retirement flexible, is a bit contradictory,' she said.

Susan Hill (pictured above), a financial planner in St Albans, said the change would force pension providers to rethink how they presented freedoms.

‘The significance of that move now is the whole industry is going to have to reprint their literature and I think it is just pointless to be honest. I’m not sure it was something people were taking advantage of in large numbers,' she said.

Hill added that it was unlikely to make the money the Treasury thought it would. Autumn Statement documents showed the Treasury believed cutting the MPAA would make £70 million a year from the 2017-18 tax year, rising to £75 million in 2020-21.

‘I’m not sure the MPAA cut is going to make the Treasury huge amounts of money. I don’t have any clients who have taken tax-free cash they then recycled; most people take the tax-free cash and pay off their mortgage,’ Hill said.

However, Hill was more positive about other measures which were introduced by Hammond, including the commitment to the triple lock protection to the state pension.

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2 comments so far. Why not have your say?

eddie cairns

Nov 24, 2016 at 13:44

Agreed it seems like a sledge hammer to crack a walnut.

Very few people are doing it and £4k will give say £200 a year increase in pension if taking as an inflated amount and adding on the tax relief and only £160 a year if paying BR tax on retirement.

That is hardly worth doing if you are say 58 and want to retire at 64. You could only increase your pension by say £960 a year maybe £1,100 with ome growth over the time.

It is hitting 98% of pension savers to maybe and it is a big maybe catch 3%.

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Law Man

Nov 24, 2016 at 13:54

As Eddie says, it is rather trivial.


Better would be to simplify the rules for the vast majority who are still saving before retirement. The £40,000 p.a. Annual contribution limit and £1m life time allowance seem unnecessary and restrictive. Those with varying income should be able to put less or more in as their income changes.


Query: abolish them and introduce a flat rate 33.33% tax relief?

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