I agree We use cookies on this website to help us provide the best user experience. By browsing this site you agree to their use - more information is available here.

Barnett Waddingham
0333 11 11 222

Spring Budget: MPAA reduced...despite calls to leave it unchanged

Published by James Jones-Tinsley on

In the Autumn Statement 2016, the government announced a consultation on whether reducing the Money Purchase Annual Allowance (MPAA) from £10,000 to £4,000 would minimise the re-cycling of pension savings, allow the continued successful roll-out of automatic enrolment, or would impact disproportionally on particular groups.
The reduction is disappointing, although perhaps unsurprising; given that the consultation only finished three weeks before the Spring Budget was delivered.

In common with numerous other pension providers, Barnett Waddingham responded to the consultation, urging the government to leave the MPAA at £10,000; given an apparent lack of evidence that widespread abuse of pension tax relief was taking place by those aged 55 and over, who have flexibly accessed their defined contribution (DC) pension funds, since the ‘pension freedoms’ were first introduced in April 2015.

It appears that our justifiable protestations have fallen on deaf ears.  In a Policy Paper released after the Chancellor had delivered his Budget speech, the government states that it “…believes that an MPAA of £4,000 would be fair and reasonable and should allow individuals who need to access their pension savings to rebuild them if they subsequently have opportunity to do so”.

The reduction takes place with effect from 6 April 2017.

Despite them not providing statistics to demonstrate that recycling of pension funds is rife, the government go on to say that “…the reduction in allowance from £10,000 to £4,000 will limit the extent to which pension savings can be recycled to take advantage of tax relief, which is not within the spirit of the pension tax system.”

Following the consultation, which closed on 15 February 2017, the government state that it “…has seen no grounds to change its view on reducing the MPAA.”

A government response to the consultation will be published on 20 March 2017.

The reduction is disappointing, although perhaps unsurprising; given that the consultation only finished three weeks before the Spring Budget was delivered.  Clients who are looking to wholly or partly access their pension funds, on or after 6 April, but wish to continue funding their DC pension up to the prevailing Annual Allowance (AA) of £40,000 gross per year, need to be even more careful than before to avoid triggering the MPAA, and lowering their contribution ceiling to just one-tenth of the AA.

RSS Logo  Subscribe to RSS feed

Related Expertise

About the author

  • James Jones-Tinsley

    James assists colleagues in both the SSAS and SIPP Practice Areas on a wide range of technical matters relating to the operation and governance of Barnett Waddingham’s self-invested pension arrangements.

    View Biography

Register for your choice of email alerts

Stay ahead with our latest comment, expert insight and event details.