The government has announced that it is to cut the money purchase annual allowance for pensions that have been drawn down to £4,000.

Delivering his first Autumn Statement in parliament today, 23 November, Chancellor Philip Hammond said: “For pensions that have been drawn down, I will also reduce to £4,000 the money purchase annual allowance to prevent inappropriate double tax relief being gained.”

The current limit is £10,000, which came into effect in April 2015. In the Autumn Statement background document the government said it does not consider that earners aged 55 and over should be able to enjoy double pension tax relief, such as relief on recycled pension savings, but does wish to offer scope for those who have needed to access their savings to subsequently rebuild them.

The government has launched a consultation on the detail of the reduction, which will run until 15 February 2017, and the responses will inform the changes taking effect from April 2017. The consultation paper can be viewed here.

However, the Chancellor announced that salary sacrifice will be abolished from April 2017 but pensions will be exempt from this.

“The government will take action now to reduce the difference between the treatment of cash earnings and benefits. The majority of employees pay tax on a cash salary but some are able to sacrifice salary by agreement with their employer, and pay much lower tax on benefits in kind. This is unfair and so from April 2017 employers and employees who use these schemes will pay the same taxes as everyone else.

“Following consultation with stakeholders, ultra-low emission cars, pension savings, childcare and the cycle to work scheme will be excluded from this change,” he said.

Commenting generally on pensions, the Chancellor said “pensioner poverty is at its lowest level ever” and confirmed that the government will keep its pledge on the triple lock for the state pension throughout this parliament.

However, he said that the government will review public spending priorities for the next parliament in the next spending review, hinting that the triple lock may not be carried forward after 2020.

The government will also be increasing insurance premium tax from 10 per cent to 12 per cent from April 2017, however annuities will not be included within this.

In an unexpected twist, the Chancellor announced that his first Autumn Statement is to be his last. Instead, Next spring, there will be a final spring Budget, and then commencing from Autumn 2017 there will be a Budget with a spring statement in 2018.

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