AJ Bell has called for a minimum £10,000 increase to the money purchase annual allowance (MPAA) in a letter to chief secretary to the treasury, John Glen.

In the letter, AJ Bell head of retirement policy, Tom Selby, stated that the treasury should make the increases to MPAA “to send out a message to hard-working savers that the government is on their side” in the face of the cost-of-living crisis.

The letter explained the need for the increase, stating: “With energy and mortgage costs adding hundreds of pounds to many people’s monthly bills the number of people taking taxable incomes from pensions, thus triggering MPAA, is likely to rise further.”

Selby also argued that there is a “growing body of evidence” that the number of people accessing their pensions in response to inflationary pressures is rising, pointing to statistics from the Financial Conduct Authority (FCA), which showed that the number of retirement pots accessed for the first time in 2021/22 rose by 18 per cent.

Selby stated: “Punishing those who access their retirement pot flexibly with a swingeing cut to their annual allowance is deeply unfair and will leave many hamstrung when looking to rebuild their pension after the crisis.”

Although the letter called for an increase to the MPAA, Selby also highlighted broader issues with the allowance, arguing that it “risks leaving middle Britain stranded” and that it could discourage good long-term behaviour such as boosting savings through auto enrolment.

In light of these concerns, Selby acknowledged that the increase was likely a “short-term solution”, pointing to pension recycling rules as an alternative longer-term solution.

Selby explained that, by adapting previously existing pension recycling rules, it could be a deterrent to anyone tempted to exploit the system and potentially offer a route to abolishing the MPAA altogether by treating a payment as “unauthorised” if it seeks to exploit the system.

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