Scrap Reduced Money Purchase Annual Allowance for Pensions

Self Invested Personal Pension (SIPP) provider AJ Bell has conducted a survey with financial advisers in connection changing the rules and limits on the reduced Money Purchase Annual Allowance (MPAA).

According to the survey, 40% of advisers want the MPAA thrown out altogether, whilst just under a third want to see it increased back to £10,000 from £4,000.  Only 9% support a temporary suspension during the current covid-19 crisis.

Tom Selby senior analyst at AJ Bell suggests even before the crisis the MPAA was unfair for savers that wanted to access their taxable income from their pensions.

During covid-19 more over 55’s face losing their jobs and salary cuts.  In this environment people are being hit with a 90% pensions annual allowance cut for taking just £1.00 of taxable income from their pensions using drawdown or even simply accessing their savings to help loved ones struggling. Many feel that it is unjustified to penalise people for accessing their pension fund from age 55.

The MPAA limits defined contribution savers withdrawing from their pension pot whilst they make contributions to stop them from benefiting double tax relief by drawing down on their pension (already had tax relief on) and then paying those withdrawn funds from your pension fund and paying them back into a pension to get a second round of tax relief. 

This is known as recycling and to stop this, there is the MPAA restriction to stop you paying more back into pensions when you have accessed the taxable income part of your pension fund.

Comment

We expect significant changes to pensions and tax relief when the widely expected Pensions Bill is published.