MPAA reduction will hit retirees from 2017/18 tax year despite legislation yet to be passed
The Government has confirmed that its cut to the money purchase annual allowance will apply retrospectively from April this year, despite having yet to enact it in legislation.
Amid the election, a number of measures – including the one to reduce the MPAA from £10,000 to £4,000 – were taken out of the Finance Bill to speed its passage through Parliament.
The Government had previously said dropping the Finance Bill measures did not mean there was any change of direction on reform. However, there was confusion over whether the MPAA cut would apply for the 2017/18 tax year.
In a statement today, the Treasury confirms this will be the case.
The statement says: “The Finance Bill introduced in March 2017 provided for a number of changes to tax legislation that were withdrawn from the Bill after the calling of the general election.
“The then-Treasury financial secretary confirmed at the point they were withdrawn that there was no policy change and that these provisions would be legislated for at the first opportunity in the new Parliament.
“The Government confirms that intention. It expects to introduce a Finance Bill as soon as possible after the summer recess containing the withdrawn provisions.
“Where policies have been announced as applying from the start of the 2017/18 tax year or other point before the introduction of the forthcoming Finance Bill, there is no change of policy and these dates of application will be retained. Those affected by the provisions should continue to assume that they will apply as originally announced”.
Former pensions minister and Royal London policy director Steve Webb criticised the announcement as “arrogant”.
Webb says: “It would be outrageous for Parliament to be debating in September and October what tax allowances will be from 6 April 2017. Cutting the MPAA is an unnecessary measure in the first place, but it is particularly unacceptable to do so with retrospective effect. How were savers meant to know in May who was going to win the election?
“This is an arrogant announcement based on the assumption that the DUP will vote with the Government on tax measures and so any tax change can be got through the House of Commons.”
AJ Bell senior analyst Tom Selby said that the news was a “bitter blow” for retirees.
He says: “We do at least have clarity on what the MPAA is for 2017/18, which means advisers and individuals can plan with a degree of certainty.
“But the reality is the UK pension tax regime is a mess, bedeviled by complexity and confusing even to seasoned industry experts. Rather than continuing to tinker with a broken system, the Government should carry out a root and branch review aimed at simplifying the rules and encouraging more people to save for retirement.”