X

X

MPAA freeze set to squeeze many more basic rate taxpayers

tax

A freeze in the Money Purchase Annual Allowance (MPAA) along with changing tax thresholds is set to increase the number of basic rate taxpayers aged 55+ who have taken a taxable payment from a defined contribution pension facing a squeeze on tax relief on their future pension contributions, finds retirement specialist Just Group.

The freeze in the MPAA at £4,000 combined with new tax thresholds for 2020-21 shows how more employees, even those contributing the minimum 8% of salary to a workplace pension, could start to feel the squeeze due to pension contributions that exceed the allowance.

In 2020-21, the marginal rate of income tax was 20% on earnings up to £50,000 and someone earning that amount making an 8% pension input would be within the £4,000 MPAA limit.

For 2021-22, the 20% tax threshold is £50,270 and someone earning that amount making the 8% contribution would have an input of £4,021, just above the £4,000 limit. The scheme member would face an annual allowance charge on the £21 excess, in effect clawing back tax relief and reducing the tax efficiency of saving into the pension.

Stephen Lowe, group communications director at Just Group, commented: “It is not reasonable for policymakers to expect most people to be aware of and understand the complexities and consequences of the rules which impact their ability to keep saving into a pension.

“Nearly four in five pensions accessed by those aged 55+ each year without advice are missing out on the free, independent and impartial guidance they are entitled to from Pension Wise that could help them navigate these complex rules.”

This Week’s Most Read

Latest IFA Magazine Podcast Episodes

Keep updated on the most important financial events 

Make sure you are an informed

wealth professional..

Adblock Blocker

We have detected that you are using

adblocking plugin in your browser. 

IFA Magazine