The reduction of the money purchase annual allowance (MPAA) from £10,000 to £4,000 a year, is an “unnecessary tweak” that “flies in the face” of the government’s previous efforts to make retirement more flexible, industry reaction has revealed.

In his first Autumn Statement today, 23 November, Chancellor Philip Hammond said the government is making the reduction to prevent people benefiting from double tax relief. The Treasury has now launched a consultation to finalise the detail, which runs until 15 February 2017.

Former Pensions Minister and Royal London director of policy, Steve Webb, explained that with the new change as soon as someone draws a pound of taxable cash using the pension freedoms, the amount they can save in a Money Purchase pension would be slashed from £40,000 to £4,000.

“This will have a profound impact on their ability to go on working and contributing worthwhile amounts to a pension. Starting to draw taxable pension cash becomes even more of a cliff-edge than at present. We should be trying to make combining work and drawing a pension easier not harder. We also need to know what will happen for people who have already drawn taxable cash expecting to be able to go on saving £10,000 per year. Any retrospective change would be totally unfair to savers,” he said.

This is a view shared by Dentons Pension Management director of technical services Martin Tilley, who believes the change is “unlikely to produce significant Treasury revenue and is an unnecessary tweak, where at this juncture none was required”.

In addition, Retirement Advantage pensions technical director Andrew Tully said the reduction is a “significant restriction” to the pension freedoms introduced in April 2015.

“People will need to carefully consider before they take benefits if there is a possibility they or their employer may want to make future pension contributions above a relatively low limit of £4,000 a year. However people’s circumstances change so it isn’t always possible to know what the future may hold, and this change greatly restricts that ability to alter plans as you move through retirement,” he added.

In terms of revenue that the change will make, AJ Bell head of technical resources Gareth James noted that the government expects to raise £70m a year but struggles to see how it will actually raise this much.

“The consultation document points out that only 3 per cent of individuals aged over 55 make pension contributions of more than £4,000 a year and our experience is that the number of people who have used the pension freedoms that make those kind of contributions is even lower. It will be interesting to see whether the government proceeds with this proposal once it has heard representation from the industry about the limited impact it is likely to have.”

However, taking a different view Gowling WLG principal associate Hannah Beacham noted that reducing the MPAA to £4,000 will “bring it into line with the proposed annual contribution limit for the new Lifetime ISA”.

“It may be viewed as a further ‘chipping away’ at pensions tax allowances by the Treasury, and is likely to have a greater effect on higher earners than low to moderate earners. There may also be administrative complexity for occupational pension schemes, who have only just got to grips with the additional administrative burden following the introduction of the MPAA in April 2015.”

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