The Government is dropping the retrospective reduction of the money purchase annual allowance (MPAA) that would have seen 500,000 people who exercised pension freedoms restricted in their pension saving.
A series of amendments to the Finance Bill include dropping the cut of the MPAA from £10,000 to £4,000, as well as the funding of £500 of advice for employees and the reduction of the nil rate band on dividends from £5,000 to £2,000.
One source told Corporate Adviser that the application of purdah rules in the run-up to the election meant potentially politically-charged legislation was likely to be shelved. In a debate in the House of Commons today Treasury financial secretary Jane Ellison said the Government would press ahead with the moves in the future.
Technical Connection head of pensions strategy Claire Trott says: “It isn’t a surprise that some changes announced in the Spring Budget may be put on hold because of the snap general election, some of this will be welcomed in the grand scheme of things but it does make planning very difficult. Advisers will have told clients to opt out of some schemes or cut back on contributions because it was believed that the MPAA would be cut to £4,000 but this appears unlikely now with the rush to get the Finance Bill through before the election.
“This doesn’t mean it won’t happen but it will need to go in the next Finance Bill which will take time and can’t really be back dated to the beginning of the tax year. This and other changes will leave clients and advisers in limbo again which really isn’t helpful for anyone.”
Aegon pension director Steven Cameron says: “The reduction in the MPAA from £10k to £4k for those who had exercised pension freedoms was very contentious and at odds with the Government’s intention to support longer working lives. Ideally we would like to see the proposed reduction dropped entirely. We’re also looking for urgent clarification on whether individuals will be allowed to pay in £10k in the current tax year without suffering a tax penalty.
“Another casualty of the race to hold a general election is employers funding up to £500 of advice for employees. Some employers will already have included this into employee benefit packages and we again need urgent confirmation that anyone who has already received this will not be taxed on this as a benefit in kind.”
Baroness Altmann says: “This may be a move to ensure that nothing controversial goes ahead pre-election, or it could indicate that there are plans for broader reform of pensions tax relief, and even the merger of NI and income tax, in the event that a larger majority is confirmed.”
Hargreaves Lansdown head of policy Tom McPhail says: “The government is rushing through the legislation wash-up, prioritising key policy measures and jettisoning anything which could slow-up the process. The good news is the suspension of the cuts to the Money Purchase Annual Allowance and the dividend allowance, however investors would be wise not to assume this is a permanent reprieve.”
“Politically, it makes sense to ditch unpopular policies during an election campaign, in order to avoid upsetting voters. The MPAA cut in particular is particularly pernicious as it is retrospective. We do currently expect to see these changes reintroduced the other side of the election, in the event of a Tory victory. We suggest investors should continue to assume that by the end of this tax year, they may have to work within the reduced MPAA and dividend tax allowance.”
Treasury financial secretary Jane Ellison said: “The Finance Bill is proceeding on the basis of consensus, and at the request of the opposition we are not proceeding with a number of clauses in this bill.
“As we know, these changes 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.”