Tax-free pension curbs dropped ahead of election

Pension providers were on Tuesday seeking urgent clarity from the Treasury over the legal status of a controversial cut to the tax-free pension savings allowance after it was dropped from the finance bill.

The measure, announced in last year’s Autumn Statement, reduced the money purchase annual allowance (MPAA) from £10,000 to £4,000 for over-55s who had “flexibly” accessed their pension savings.

The new rule applied from April 6 and was expected to be retrospectively confirmed in the finance bill progressing through parliament.

Following the announcement of a snap general election, however, it is one of a number of measures absent from a slimmed-down bill due to be pushed through quickly ahead of the June 8 poll. 

In spite of being dropped from the bill, the government confirmed on Tuesday that it had not abandoned the policy and would still seek to legislate for it at a later date.

“At the request of the Opposition, we are not proceeding with a number of clauses in this bill,” Jane Ellison, financial secretary to the Treasury, told the House of Commons.

“There has been no policy change. These provisions make a significant contribution to the public finances and the government will legislate for the remaining provisions at the earliest opportunity at the start of the new parliament.”

But pension providers said the statement did not clear up uncertainty over the legal status of the measure, which they had been marketing to their customers from the date it applied on April 6.

“While the Treasury statement confirms the direction of travel, the effective date of change remains unclear,” said Steven Cameron, pensions director with Aegon, a provider.

“To provide clarity we would ask the Treasury to confirm the date from which each change will take effect. We would hope the MPAA change will take effect from 6 April 2018 as it would not be workable to have a change mid-tax year and making it effective from April 2017 would be a retrospective change which would penalise certain individuals.”

Richard Parkin, head of pensions policy at Fidelity International, said “unless and until HMT says different we must assume that the £4,000 limit will apply for 2017-18.”

The Treasury was asked by the FT to clarify the legal position of the MPAA cut to £4,000 but it had not responded at the time of publication.

If the government is re-elected, the measure will be subject to the scrutiny of parliament as part of the finance bill’s passage into law.

At the time the measure was announced in the Autumn Statement, many in the pensions industry argued it would fly in the face of government efforts to make retirement more flexible, since it would cap pension savings for those who work later into life.

Experts said the change would affect those who had started accessing their pension savings in some form — for example, a lump sum to help pay off a mortgage or other debt — but were otherwise looking to continue to top up their pension savings.

The pensions annual allowance remains at £40,000 for those who do not access their pensions flexibly. An example of flexible access would be taking more than tax free cash from a flexi-access drawdown account.