Industry experts have highlighted a number of areas for potential reform ahead of the government's Budget this month, with particular calls emerging for pensions tax updates and auto-enrolment changes.

Commenting ahead of the Budget on March 15, Barnett Waddingham self-invested technical specialist, James Jones-Tinsley, argued that now is the "perfect opportunity" to remove the MPAA, arguing that it negatively impacts 1,000 savers each working day.

Jones-Tinley additionally pointed out that scrapping the MPAA would “tie directly into” the government’s ambition to get people back into employment following the Covid-19 pandemic.

This comes after an industry coalition of around 16 companies called on the Treasury to review the MPAA, arguing that the allowance acts as a “barrier to retirement saving”.

Calls for MPAA changes have also heightened after HMRC data revealed that £3.6 billion of flexible pension withdrawals were made between 1 April and 30 June 2022, marking a 23 per cent increase compared to the same period in 2021.

“Punishing those who access their retirement pot flexibly with such a swingeing cut to their annual allowance is deeply unfair and will leave many hamstrung when looking to rebuild their pension after this crisis," AJ Bell head of retirement policy, Tom Selby, stated.

“To send out a message to hard-working savers that the government is on their side, we recommend the Treasury should, as a minimum, increase the MPAA to £10,000 as soon as possible."

However, AJ Bell also expressed broader concerns around this level of overtaxation on pension withdrawals, calling for an “urgent” review into how flexible withdrawals are taxed and urging the government to share a timetable for creating a system which taxes people correctly.

AJ Bell also raised concerns around the lifetime allowance (LTA), arguing that this is “among the primary reasons” some senior NHS staff have decided to retire early, and that
the longer the LTA is frozen at its current level of £1,073,100, the more it will start to impact on the decision making of other workers in both private and public sector.

In light of this, AJ Bell suggested that, as a minimum, the government should reconsider its decision to freeze the LTA until 2026 and instead uprate the threshold with inflation.

Broader tax reforms were also recommended, however, as Selby argued that "tinkering by successive governments has resulted in the UK having a mind-boggling set of allowances designed to control the cost of pension tax relief".

He continued: "This complexity is incredibly difficult to navigate, risks putting people off saving in pensions and hinders effective communication.

“An independent review of the pension tax system, with the dual aim of simplifying the system and encouraging more people to save for retirement, could help achieve consensus on building a framework that is fit for the future.”

PensionBee echoed these calls for tax reform, agreeing that the government should unfreeze the LTA, also calling for the government to increase the annual allowance to £60,000 and consider applying a 30 per cent flat rate of tax relief to all pension savings.

PensionBee director of public affairs, Becky O’Connor, also reiterated calls for the government to introduce auto-enrolment reforms, urging the government to extend auto-enrolment to 18- to 22-year-olds to boost private pension provision and encourage long-term savings habits.

The reduction of the earnings trigger for auto-enrolment was also called for by O’Connor as she stated that it would “capture” more part-time and low paid workers and prevent people’s private pension savings from stopping altogether.

O’Connor also called for the increase of auto-enrolment minimum contributions from 8 per cent to 10 per cent, warning that the current minimum contribution amount “will not be enough” for most people to fund a moderate living standard in retirement.

The provision of affordable childcare was another issue mentioned by O’Connor, who called for the budget to enable parents to build up bigger workplace pensions, explaining that, for workers starting a family, the point at which childcare is required is often the point at which pension savings” stops or is reduced dramatically”.

"Better pension outcomes and a reduced gender pension gap would be an indirect but significant consequence of more spending on childcare," she stated.

Quilter head of retirement policy, Jon Greer, also shared his hopes, calling for the government to abolish plans to increase the normal minimum pension age and avoid adding unnecessary complexity to the system, arguing the changes have been “ill-thought through”.

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