83% of advisers want changes to MPAA - AJ Bell

More than eight in 10 (83 per cent) advisers support reform of the money purchase annual allowance (MPAA) amid the Covid-19 pandemic, according to survey results from AJ Bell.

The survey, which was conducted during AJ Bell’s ‘Off the Road’ webinar, found that 40 per cent of the advisers were keen to see the MPAA scrapped.

Almost a third (30 per cent) said they wanted to see the MPAA increased from £4,000 back to £10,000, while 9 per cent supported temporarily not applying the annual allowance cut during the current crisis.

The MPAA restricts the amount people can put into a defined contribution (DC) pension and receive tax relief to £4,000 if they have withdrawn funds from a DC pension pot in certain ways.

AJ Bell senior analyst, Tom Selby, said: “Even before Covid-19 hit, the MPAA felt like an unfair punishment for savers whose only crime was accessing taxable income from their pension pot.

“During this crisis many more over-55s will be facing salary cuts or joblessness, while others will need to use their savings to help loved ones struggling to make ends meet.

"In such an environment, hitting people with a 90 per cent annual allowance cut for taking even £1 of taxable income from their pension feels deeply unjust.”

He noted that one in 10 over-55s said they had accelerated plans to access their retirement pot in the early stages of lockdown, adding that “many more are likely to consider doing this as the Government support for businesses is pulled back between now and October”.

Selby concluded: “While there are various easements to the MPAA the government could consider to help hard-pressed savers, the simplest would be to scrap it altogether.

“This could then mark the beginning of a radical pensions reform agenda, with the aim of simplifying the unnecessarily complex tax rules savers have to navigate and encouraging more people to save for their financial future.”

The idea of abolishing or increasing the MPAA to £10,000 had been mooted by former Pensions Minister Steve Webb in March, when he pointed out that many people would need to access retirement savings to see them through short term financial pressures and called for the government to show it was “on the people’s side, not standing in their way”.

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