The proposed reduction in the Money Purchase Annual Allowance

Commenting on the proposed reduction in the Money Purchase Annual Allowance (from £10,000 to £4,000) for those who have used the pension freedoms, Steven Cameron, Pensions Director at Aegon said:

“Most people exercising pension freedoms won’t realise this currently reduces their ability to pay future pension contributions (their money purchase annual allowance) to £10,000 and most won’t want to make contributions anywhere near this in any case.

“However, reducing the cap on post freedom pension contributions to £4,000 makes it much more important to think ahead. Accessing any of your pension funds early, for example to generate a one-off cash sum while still working, to pay off a short term debt for example, could now seriously affect your future pension prospects. It could even stop you receiving the full amount your employer is prepared to contribute if this would take you above £4,000. This is a further reason to seek advice before accessing pension freedoms.”