Aegon calls for MPAA to increase to £10,000

Aegon has called for the money purchase annual allowance (MPAA) to be increased back to at least £10,000, as it can be financially harmful to those entering retirement gradually.

The MPAA stops people who have accessed their pension flexibly from contributing more than £4,000 into their pension pot per year without a tax penalty.

Aegon’s analysis found that people earning £30,000 that have total contributions of 14 per cent of salary would be breaching the MPAA if they had flexibly accessed their savings, with higher earners breaching even if they pay lower contribution rates.

The company said that the MPAA is currently not compatible with the flexible way more people are accessing their benefits and that is could have wider implications than the tapered annual allowance crisis which is affecting public sector workers.

The MPAA limit was reduced from £10,000 to £4,000 per year by the government in 2017.

Its research found that 49 per cent of UK workers over 50 and earning over £20,000 per year wanted to transition into retirement by reducing work hours with partial retirement, which could leave them affected by the MPAA.

Commenting, Aegon pensions director Steven Cameron said: “The £4,000 money purchase annual allowance is putting thousands of older workers at risk of finding out too late that they have damaged their future pension potential.

“Barriers to contributing above £4,000 a year in later working life could leave individuals thousands of pounds out of pocket through having to turn down valuable employer pension contributions.

“It could even mean that they opt out of being automatically enrolled into a workplace pension because their combined employer and individual contributions are above £4,000.”

It seems as if people are in the dark regarding the MPAA, with 22 per cent of non-advised drawdown consumers unaware of the limit, according to Canada Life.

Furthermore, HMRC admitted last month (July) that it did not know how many people it was fining each year over MPAA breaches.

Cameron added: “This little-known cap is undermining the widely applauded pension freedoms and auto-enrolment and we would like to see it returned to the original £10,000 limit to reflect the current attitude of the working population when they consider retirement.

“The rule was introduced to stop people ‘recycling’ their pension, effectively drawing a pension income and paying it back in to get a second round of tax relief.

“We do not believe this is a real life issue, but limiting contributions to £4,000 means many thousands of people could accidentally end up with a tax bill or have their retirement saving prospects severely reduced for the rest of their working lives. For someone dipping in at age 55, that could be a further 20 years.”

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