The government has confirmed its plans to reduce the Money Purchase Annual Allowance and introduce an advice allowance in the new Finance Bill.

The Finance Bill, published today, 8 September, states the government’s decision to cut the MPAA from £10,000 to £4,000 for the 2017/18 tax year and onwards. This will work to limit the extent to which savers can recycle their pension savings to get extra tax relief.

The Bill also confirms the introduction of the pensions advice allowance. The advice allowance will permit pension scheme members to access £500 from their pension pot tax-free up to three times before they reach age 55 to pay for regulated financial advice.

“Relevant pensions advice in relation to a person, means information, or advice, in connection with— (a) the person’s pension arrangements, or (b) the use of the person’s pension funds,” the Bill states. The advice must be provided under a scheme that is open, it adds.

Furthermore, the Bill introduces a tax-free dividend allowance cut from £5,000 to £2,000 from April 2018. As a result of this reform, it is likely that affected investors may instead consider relocating their investments into tax wrappers like pensions or ISAs, “where investment growth and dividend payments are free of tax,” explains AJ Bell senior analyst Tom Selby.

Treasury and Paymaster General financial secretary Mel Stride said: “A fair tax system is a key part of our plan to build a fairer society.

“The UK is a world leader in tackling tax avoidance and evasion, but we must continue to take action to ensure everyone pays their fair share. The Finance Bill will allow us to do just that by preventing companies and individuals from using complicated tax structures to avoid paying the tax they owe, and penalising people that help them to do it.”

In his first Autumn Statement, Chancellor Philip Hammond said the government is making the reduction to prevent people benefiting from double tax relief. The Treasury then launched a consultation to finalise the reforms detail, but was put on hold with the General election and forming of the new government earlier this year.

The Pensions Advice Allowance was also first mooted by the government in the Autumn Statement in 2016. It will be available to holders of DC pensions and hybrid pensions with a DC element, but not to DB scheme members or final salary type schemes.

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