Former pensions minister Steve Webb has slammed as ‘outrageous’ Government plans to reinstate the cut in the MPAA relief from April 2017.
Treasury Minister Mel Stride has today confirmed that the Government plans to reintroduce Budget cuts to pensions tax relief with effect from April 2017, three months ago.
In March, prior to the General Election being called, Chancellor Philip Hammond confirmed that the MPAA would be cut from £10,000 per year to £4,000 per year – already a retrospective tax hit on around 500,000 individuals who had accessed pension cash flexibly who will now be hit with a £4,000 annual pension allowance even though the limit was £10,000 when they made their withdrawal.
The measure was dropped from the Finance Bill when the General Election was called, but has been revived today by the Government.
A statement from the Treasury says:“The Finance Bill introduced in March 2017 provided for a number of changes to tax legislation that were withdrawn from the Bill after the calling of the general election. The then-Financial Secretary to the Treasury confirmed at the point they were withdrawn that there was no policy change and that these provisions would be legislated for at the first opportunity in the new Parliament.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 It expects to introduce a Finance Bill as soon as possible after the summer recess containing the withdrawn provisions.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”.
Royal London director of policy Steve Webb says: “It would be outrageous for Parliament to be debating in September and October what tax allowances will be from 6th 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. With tax measures not debated in the House of Lords, this gives the Government a free hand on tax, which is not good for proper scrutiny of detailed changes such as this. The MPAA cut, if it has to be implemented at all, should be delayed until April 2018.”
AJ Bell senior analyst Tom Selby says: “Today’s news will come as a bitter blow to thousands of retirees who have used the pension freedoms to access some of their retirement pot from age 55. Many had hoped the general election would put a legal spanner in the works and force policymakers to, at the very least, delay reducing the MPAA until April 2018. These hopes have now been dashed by the Government.
“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, bedevilled 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.”