Reduction in the Money Purchase annual allowance in April 2017

Reduction in the Money Purchase annual allowance in April 2017

Normally, the annual allowance available to people who want to save into a pension is £40,000, subject to an earnings restriction if they earn less than this.

The pension flexibilities introduced in April 2015 gave savers the ability to access their pension savings flexibly, as best suits their needs. However, 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). This is currently set at £10,000.

The Government propose to further restrict this down to £4,000 per annum from April 2017.

They promised to have a consultation on the matter, and this closes for responses on the 15th February 2017.

Why are they doing this? The Government are concerned that people who are over the age of 55 may take some pension early, and then recycle this money back into a pension, thereby getting tax relief again. They are of the opinion that a limit of £4,000 is ample to enable someone over 55 to rebuild their savings in a pension. They estimate that only 3% of all people making contributions over the age of 55 will be affected.

If they maximise their pension contributions at £4,000, they still have an ISA allowance to use of £15,240. It would be extremely rare for anyone to have a disposable income in excess of these two limits.

Do you have any clients who are currently subject to an MPAA restriction of £10,000? Do they know that it will change in April to £4,000? If they are making contributions in excess of £4,000 at present, they need to take action to avoid an annual allowance tax charge.

Technical helpdesk – Tel: 01772 781880 or email – for attention of Technical Helpdesk.

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