As Chancellor Jeremy Hunt weighs up his options for changing pensions policy in next week’s spring budget, an expert has said he should bin a policy that is restricting pension savings for many Britons.
Claire Trott, divisional director of Retirement and Holistic Planning at St. James’s Place, said the Money Purchase Annual Allowance (MPAA) should be removed.
She told Express.co.uk: “Although the MPAA is now £10,000, it can still be a disincentive for those with extensive knowledge to return to the workforce.
“Drawdown has given flexibility to start and stop income so it would seem possible to take time out when you reach the minimum pension age and used some of these funds to experience retirement when you are still young and fit enough to do all those things working life may prohibit.
“But many people don’t want to stop work forever or find themselves in a place were returning to work to pass on their expertise is appealing. The MPAA restricts their options to top back up their pension savings should they decide to do this.”
“The Government is encouraging us to work longer but increased flexibility to have a retirement ‘gap year’ or two could easily bring more back to support the economy.
“It is just one more pension complexity that needs to be done away with, particularly as it only impacts those who take benefits in certain forms.”
However, Chris Rudden, head of Investment Consultants UK at Moneyfarm, warned there will likely not be any changes to the MPAA in the Chancellor’s spring statement.
He said: “The Money Purchase Annual Allowance (MPAA) was introduced to stop people abusing the new pension rules under freedom and choice.
“Any changes to the MPAA could impact the amount individuals can contribute to their pension each year after they have started to draw income from it. This could affect the growth of their pension pot and their financial security in retirement.
“Given the chancellor announced that the MPAA would more than double from £4,000 to £10,000 from April 2023, we don’t expect any further changes to this.”
Ms Trott also called for the personal allowance to be increased in line with wages, as the full new state pension has almost reached the threshold for being subject to income tax.
She said: “The frozen personal allowance of £12,570 will soon mean that more and more pensioners will be forced to pay additional tax or be pushed into doing a tax return.
“State pensions are paid gross and if they have private pension income then the tax paid on these will be adjusted to take account of any of the personal allowance used by the state pension payments.
“So, any increase in the state pension, although welcome, will have less impact on those who are receiving other pension payments from their hard saved income through their lifetimes because it will just mean more of that income is taxed, or even push them into a higher rate of taxation.
“It seems right that this should be increased in line with wages to ensure we are not penalising individuals year after year for increasing their income and driving growth.”
The full new state pension is currently £203.85 a week. Payments are increasing 8.5 percent from April, with the full amount going up to £221.20 a week, or 11502.4 a year, which is only just over £1,000 away from behind subject to income tax.
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