The government’s planned reduction of the money purchase annual allowance (MPAA) from £10,000 to £4,000 has always been a somewhat controversial move.
It hit the headlines again earlier this week when the government confirmed that it would delay legislating for the reduction to the MPAA after the clauses that would legislate for these provisions were removed from the Finance Bill 2017. Although the government has stated that all dropped clauses will be reinstated during the next Parliament, this could depend on whether the Conservative Party is re-elected during the snap general election on 8 June.
Given the reduction was due to take effect from 6 April, this leaves a number of unanswered questions. First and foremost, the industry is calling for urgent clarification on whether the reduction will be backdated to 6 April should it be legislated for at a later date. Should this turn out to be the case, will individuals who pay in more than £4,000 in the interim suffer a tax penalty for doing so?
With this in mind, what information and education should employers give to staff who have taken up options under the pension freedoms or are looking to do so?
While they will be unable to give specific advice, should it fall to employers to highlight the potential change and delay to employees?
And how easy will this be given the lack of detail and clarity that currently surrounds the delay?
According to data published by HM Revenue and Customs (HMRC) this week, to the end of March 2017, approximately 625,000 individuals had accessed payments from their pension under the pension freedoms. This represents a significant number that may well be questioning if they could potentially be impacted by a reduction in the MPAA.
At the moment, however, it seems like there are more questions than answers. And with the government now preparing for the snap election, answers may be some time coming.