After the Chancellor’s announcement in today’s Budget that the Money Purchase Annual Allowance will increase to £10,000, Jon Greer, head of retirement policy at Quilter has commented.
He said:“While it might have gone somewhat under the radar, arguably the only change to the pension landscape today that will certainly help the masses when it comes to pension saving and creating an incentive to return to work is the increase in the MPAA.
“The MPAA is a relatively little-known tax rule, yet many currently fall foul of their annual pension allowance perversely reducing from £40,000 to £4,000 if they have accessed their pension and then returned to work and restarted contributions again. Raising this to £10,000 alleviates the risk of hitting the MPAA for most people with earnings of less than £100,000 whose contribution are up to 10% of earnings. This is a positive step as for lots of people a primary reason for returning to work or taking on more hours is to boost their pension pots.
“According to the government’s spending forecasts, increasing the MPAA to £10,000 from April 2023 will cost £170 million by the 2027/28 tax year. This will likely be money well spent given how intent the Chancellor is on driving the over 50’s back to the workplace, and this change will also go hand in hand with the government’s ‘returnerships’ programme announced today.
“While we support this move, there are still ways to improve how this rule works without opening the flood gates to tax avoidance. Ultimately, the government should have moved to scrap the rigid MPAA rules, and instead explored whether a general anti-abuse approach could work better than the rigid, strict approach currently employed.”