Reducing the Money Purchase Annual Allowance – consultation response

22 March 2017

Contributions to pension schemes are tax free, provided that the amount paid in a tax year does not exceed the annual allowance (AA). The standard AA is £40,000, but 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 response confirms that evidence wasn’t provided during consultation to suggest that a reduction in the MPAA to £4,000 would impact on the successful roll out of automatic enrolment or that such a reduction would impact disproportionately on different groups.

And as responses received during the consultation have also not provided evidence that changes the view of Government that a £10,000 MPAA is inappropriate, as from 6 April 2017 the MPAA will apply at the level of £4,000. This will apply to anyone who has already accessed savings flexibly, or does so in the future, irrespective of when that occurred.

These changes will be effected through Finance Bill 2017.