Reducing the money purchase annual allowance

29 November 2016

As announced in the Autumn Statement 2016, a consultation has been published on the reduction to the money purchase annual allowance to £4,000 from April 2017.

The pension flexibilities introduced in April 2015 gave savers the ability to access their hard-earned pension savings flexibly, as best suits their needs. Once a person has accessed pension savings flexibly, if they wish to make any further contributions to a defined contribution pension, tax-relieved contributions are restricted to a special money purchase annual allowance (MPAA).

This consultation relates to government proposals to reduce the MPAA to £4,000, with effect from April 2017.

The pension flexibilities introduced in April 2015 gave savers the ability to access their pension savings flexibly, as best suits their needs.

Once a person has accessed pension savings flexibly, if they wish to make any further contributions to a defined contribution (DC) pension, tax-relieved contributions are restricted to a special money purchase annual allowance (MPAA).

The government believes that an allowance of £4,000 is fair and reasonable and should allow people who need to access their pension savings to rebuild them if they subsequently have opportunity to do so. Importantly, however, it limits 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. The government does not consider that earners aged 55+ should be able to enjoy double pension tax relief i.e. relief on recycled pension savings.

This consultation seeks views on whether respondents agree that this level of MPAA would neither impact on the roll out of automatic enrolment nor disproportionately affect particular groups.

The consultation ‘Reducing the money purchase annual allowance’ closes at 15 February 2017 11:45pm.

Ways to respond

Email to MPAAResponses@hmtreasury.gsi.gov.uk

Write to: Pension and Savings Team, HM Treasury, 1 Horse Guards Road, London, SW1A 2HQ.