I think the benefits industry breathed a collective sigh of relief earlier this week when it became clear that the Spring Budget didn’t include any major announcements impacting reward.
But that’s not to say that all of the announcements were popular. Buried in the supporting policy documentation was confirmation that the government will be pressing ahead with a reduction in the money purchase annual allowance (MPAA) from £10,000 to £4,000 from April.
The move, which was originally announced in November’s Autumn Statement, will affect all individuals who have accessed their pension using the flexibilities afforded under the pension freedoms.
Although it is intended to mitigate against individuals abusing the tax system and recycling tax relief, there are concerns that instead it will adversely impact those who want to remain in work while taking some of their retirement income. If these individuals wish to continue saving into their pension, going forward this means they will have to ensure their combined employer/employee contribution does not exceed £4,000 per annum.
Some have argued this is directly at odds with government policy designed to encourage people to remain in work for longer, as well as not fitting with the spirit in which the pension freedoms were introduced.
So, will this place an additional burden on employers in terms of a need to provide financial education to potentially affected employees to ensure they are not hit with an unexpected tax charge?
If individuals will have to tweak their future savings plans, who, if anyone, should take responsibility for supporting them in this? Given the change affects workplace pension arrangements, many will naturally look to their employer for this help, but how far will employers be in a position to provide this support?
And should employers look to introduce alternative remuneration arrangements for affected employees?
Ultimately, if employees are deterred from remaining in work while drawing on retirement savings, organisations will have consider what this means for their talent pipelines.