We do look back in anger, MPAA

In November 2022, five years on from when this article was first written, the Money Purchase Annual Allowance (MPAA) still exists – and remains at £4,000 gross per tax year.

Despite numerous calls over the last five years for it to be either increased in size, or scrapped altogether, the MPAA continues to act as a largely unknown ‘tax-trap’ to thousands of individuals who draw income from their money purchase (or ‘defined contribution’) pension funds for the first time, from age 55 onwards.

In the current cost-of-living crisis, cash-strapped individuals are increasingly turning to their pension savings as a readily-accessible source of income to pay for everyday essentials including food, heating and fuel, and inadvertently triggering the MPAA as a result.

This means that – if and when their financial situation improves, and they want to fund their pension again - they are limited to a maximum contribution of no more than £4,000 gross per tax year forever, despite the Annual Allowance remaining at £40,000 gross per tax year.

Consequently, calls for the removal, or a meaningful increase in the size, of the MPAA will undoubtedly continue.

• The following blog was first published in August 2017:

Retrospective reduction of MPAA is 'pernicious and presumptive'

Long time readers may recall my blog from October 2016, entitled “Cart before horse nonsense has to stop”, in which I berated the time it was taking to get legislation through Parliament, ratifying pension-related changes that had, in effect, already come into force (for example, applying for Fixed Protection 2016).   

At the time, I optimistically looked forward to Parliament returning “…to a calm and sensible timetable, where legislation is already on the statute books ahead of any changes taking effect; thereby enabling Advisers and their clients to make decisions, based on a ‘foundation of certainty’”, and closed with a foreboding claim of, “I, for one, do not want to be repeating this Blog again in another year’s time.”

And then came the snap General Election.

Following the Election, we now have a new Parliamentary year, which will actually run for two years to tie in with the 'Brexit' timetable.

The new Government will be introducing a Finance Bill into Parliament in early September, when the current recess ends, and as we have already had one Finance Act this year, the new bill will be known as the Finance (No.2) Bill 2017.

The first Finance Act received Royal Assent on 28 April 2017, and was significantly truncated when compared with the original Finance Bill, with numerous clauses dropped, in order to get the Act onto the statute books before the dissolution of Parliament on 3 May 2017.

And one of the dropped clauses confirmed the planned reduction in the Money Purchase Annual Allowance from £10,000 to £4,000 gross per year, with effect from 6 April 2017.

Notes on the various resolutions to be included in the new Finance Bill were recently released, and included in these is one concerning the Money Purchase Annual Allowance.

Importantly, the notes confirm that the legislation will have retrospective effect for this resolution.  This means that the reduction in the Money Purchase Annual Allowance will take effect from 6 April 2017.

At least Advisers now know when the reduction is planned to take effect from, which will assist their discussions with clients effected by the Money Purchase Annual Allowance, but who still wish to continue contributing to their pension(s).

But the retrospective nature of the forthcoming legislation is both pernicious and presumptive.

It speaks of a Government who – despite their wafer-thin majority, courtesy of the DUP – expect to railroad the legislation through Parliament unamended, over the next few months.

And yet, until such time as the Bill receives Royal Assent and becomes an Act, the possibility exists that the clause concerning the Money Purchase Annual Allowance reduction could be defeated and removed from the Bill, in either the Commons or the Lords.

In the meantime, both Advisers and Providers have to tailor their advice and literature respectively to reflect this wholly unsatisfactory ‘holding’ position, whilst the Government merrily put the cart before the horse once again, as a direct result of the unnecessary, self-imposed implosion of their Parliamentary majority.

One solution to this could be to engage in more cross-party agreement before legislative changes are pushed through, whilst renowned pensions spokesperson, Alan Pickering, has recently resurrected calls for a national pensions authority, to help counter “…the toxic effect of knee-jerk legislation”.

In an ideal world, the pension juggernaut should not have to be equipped with a rear-view mirror.

This blog was first published on the SIPPs Professional website