Money Purchase Annual Allowance (MPAA) reduction confirmed

The government has confirmed it will implement the reduction of the money purchase annual allowance (MPAA), originally due to take effect in April, retrospectively.

In the second version of the 2017 Finance Bill, out last Friday, the Treasury said savers who have accessed their pension will see their annual tax-free allowance cut from £10,000 to £4,000 for the 2017/18 tax year.

The changes were due to take effect from April but were halted by the announcement of the snap general election, which took place in June. They will now be implemented retrospectively.

The bill also confirmed cuts to the tax-free dividend allowance from £5,000 to £2,000 from April 2018. The policy will reduce the tax differential between the employed and self-employed and is intended to raise revenue for the government to invest in public services, the Treasury said.

The government said the policy takes into account further increases to the tax-free personal allowance and the rising ISA allowance, which will increase to £20,000 as of April 2017.

MPs will further consider the terms of the bill in a ‘second reading’, on 12 September, following which it will move on to the ‘committee stage’.

Fidelity head of pensions proposition Carolyn Jones said: “The dumping of the MPAA changes prior to the General Election was always a postponement of the inevitable. However, seeing it retabled – while expected – is not positive.

“The government had genuine concerns about recycling, which it was right to examine carefully however, we have seen there is little evidence of behaviour driven by any dishonesty or urge to play the system.

“It appears that this change has been introduced to limit behaviours that do not exist and is, therefore, non sensical.”

Jones added: “It is set to have a negative impact on employers who are already overburdened with red tape while younger and older consumers whose positive experience of the freedoms will now be coloured by what they may feel is retrospective barriers to getting their money.”
V McKeever (PA)

Retirement ProfessionalsMoney Purchase Annual Allowance (MPAA) reduction confirmed