Treasury must relax MPAA rules to allow savers to rebuild pensions - Webb

The Treasury must relax rules which could act as a barrier to people seeking to rebuild their pensions after the current crisis is over, LCP partner Steve Webb has said.

The former Pensions Minister argued that those worst hit by the current crisis could be penalised in future if they try to rebuild their pension following the COVID-19 outbreak.

Webb highlighted two key groups as being particularly hard hit by the impact of the coronavirus pandemic, pointing to those aged 55 or over and accessing their pension for emergency cash, and those whose investments have fallen “substantially” in recent weeks.

Webb explained: ‘Many people will have seen the value of their pension savings tumble in recent weeks, and others may feel that they have no choice but to access their pension savings to tide them over short-term financial pressures.

“In both cases, pension savings could be severely dented. Once the present crisis is over some people will be in a position to start building up their pension again, especially if they are still in work."

The rules in question pertain to the Money Purchase Annual Allowance (MPAA), which would see those who withdrew taxable cash from their pension limited to just £4,000 per year in contributions on which pension tax relief can be claimed.

Webb added: “The government must support people in this rather than put barriers in place. The current £4,000 limit is far too low.

"If it cannot be abolished altogether it should at the very least be raised to the £10,000 figure from a few years ago.

“Rebuilding pension savings is going to be a challenge for many, so the government needs to show it is on people’s side, not standing in their way’.

Concerns over the complex nature of the MPAA have been raised in the past, with a freedom of information reply obtained by Royal London revealing that over 1,000 people failed to report pension tax charges on their 2016/17 tax return.

Industry experts called on the government to use the recent budget as an opportunity to address the complexity of the current pensions tax system after issues affecting the NHS bought the issue to the fore, with some experts calling for a full overhaul of the system.

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