Lack of saver awareness prompts renewed calls for govt to scrap MPAA

Renewed calls for the government to scrap or increase the Money Purchase Annual Allowance (MPAA) have emerged, after research from Canada Life revealed that two-fifths of those aged over 55 and working are unaware of MPAA restrictions.

This is despite a further 14 per cent of savers flexibly accessing their pension in the past year, with the provider warning that the allowance is "quite simply penalising people for doing the right thing".

In addition to this, they survey found that a “worrying” 40 per cent of savers are aware of the restriction, but are uncertain about the detail, with many overestimating the allowance to be almost £7,000 a year, almost double the actual limit of £4,000.

Furthermore, of those who had accessed their pension the past year, whilst 42 per cent had done so to top-up their income, a quarter (25 per cent) had used it to make home improvements, and 17 per cent had accessed their pension to save money elsewhere.

Over half (55 per cent) of those who had flexibly accessed their pension also stated that they had continued paying into their pot, prompting concerns that some savers could be met with tax penalties.

Indeed, further analysis from the provider found that the minimum auto-enrolment contribution of 8 per cent for someone on a salary of £50,000, for instance, would push someone onto the wrong side of the allowance.

It also warned that “even lower earners” could be caught by the restrictions on what are still relatively conservative contribution levels, with someone on £30,000 a year and combined contributions of 13 per cent also be pushed over the limit.

Commenting on the findings, Canada Life technical director, Andrew Tully, said: “Retirement journeys are changing and it is no longer the cliff-edge event it used to be.

“Many more people are choosing to retire later for a variety of reasons and continue working in older age, either by reducing their hours, setting up their own business or perhaps embarking on a less pressured career.

“Particularly after the financial stresses of the last year, it is understandable that people have chosen to access their pension savings for any number reasons, perhaps to top up their salary under furlough or to make those essential home improvements."

Tully also argued that the continued growth in the number of individuals accessing their pensions implies that more and more working people look to their pension pot to manage their expenses or cover unexpected costs, warning that to limit their ability to add to their pension pot to £4,000 a year is "deeply unfair".

He continued: “Given the impact Covid-19 is having on our country there is a strong case for reviewing the MPAA, so those who access taxable income from their pension can re-build their savings once this crisis is over.

“At the very least the MPAA should go back to the previous limit of £10,000, although my preference would be to scrap it altogether. The Treasury may worry about tax leakage, but the much greater issue in my view is the lack of retirement savings which many people have.

“Scrapping the MPAA removes an unnecessary complex barrier and may help many who were in financial hardship rebuild their retirement savings.”

Industry experts have previously called on the government to scrap the allowance, particularly after data from HMRC confirmed that £2.4bn was withdrawn flexibly from pensions amid the pandemic in Q4 2020.

Indeed, further analysis of HMRC figures has also revealed that more than 1,000 pension savers became subject to the MPAA every working day last year, meaning that a total of 1.6m people have been subject to the rules in the five years since they were introduced.

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