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Reductions in Pensions Savings Allowance could cause hardship

National advisory group LEBC has warned that further reductions in annual retirement savings allowances could cause hardship to a minority of consumers already in difficult circumstances.

On 23 November the Treasury released a consultation paper on its proposal to reduce the money purchase annual allowance (MPPA) from £10,000 to £4,000.

MPPA is a special allowance which applies only to those who have flexibly accessed their pension savings under the new pension freedoms and have withdrawn more than the 25% tax free lump sum. This triggers a reduction in future pension savings with the benefit of tax relief to no more than £10,000 per year. The Treasury is concerned that some individuals could be receiving an unfair advantage by accessing their pension funds and then recycling up to £10,000 per year into a new pension with tax relief. They are proposing to reduce the allowance to £4,000 to deter this.

LEBC, The Retirement Adviser, has helped thousands of individuals to access their pension savings responsibly. It has seen little evidence that recycling pension contributions is what motivates savers to seek early flexible access to their pensions.

Commenting on the consultation, LEBC’s Kay Ingram said, “The majority of pension savers we advise understand that they will need life long income from their retirement savings and are acting responsibly when withdrawing cash from their pensions. We have not seen evidence of pension saving recycling and would discourage this practice. We do not see a need for further restrictions on the annual allowance as proposed by the Treasury.

“If the allowance was further restricted we would be concerned that it could cause hardship to a minority of pension savers. This would be most likely to impact on those who had accessed their pension savings without taking advice. This could disproportionately affect those ‘just about managing’. They may access their pensions to deal with an emergency, without realising they would have restricted future tax privileged savings. For this reason we will be urging the Treasury to drop this proposal”

This was posted in Bdaily's Members' News section by LEBC Group Ltd .