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Consultation open on proposal to set allowance at £4,000.

Reducing the money purchase annual allowance: consultation has been issued and is open for comment until 15 February 2017.

It proposes to reduce the money purchase annual allowance from April 2017.

The consultation states that ‘once a person has accessed pension savings flexibly, if they wish to make any further contributions to a defined contribution (DC) pension, tax-relieved contributions are restricted to a special money purchase annual allowance (MPAA)’.

The consultation also states:

Since April 2015, on reaching normal minimum pension age, currently 55, a person can access their pension flexibly and continue to save into a pension. However, the risk of acting against the spirit of the system remains and the MPAA was introduced and set at £10,000.

While the MPAA reduces this risk, it does not eliminate it. An individual still in work can invest up to £10,000 of their earnings, tax-free, into a pension whilst also drawing out their existing DC pension savings. Although against the spirit of the tax system, acting in this way reduces an individual’s tax bill by 25% and, at the level of £10,000, this means £1,125 for an additional rate taxpayer.

The proposal is that from April 2017 the MPAA would be set at £4,000.

Article from ACCA In Practice