Autumn Budget 2016

Consultation to reduce the Money Purchase Annual Allowance

In Phillip Hammond’s first Budget as Chancellor, he announced that the Government is planning to consult on reducing the Money Purchase Annual Allowance (MPAA) in order to close a loophole, which currently allows individuals to access “double tax relief”.

The reduction will affect those over the age of 55 who have already accessed their pension pots in the form of a cash sum under the new “pension freedom” rules that were effective from April 2015. It is believed that in the first year alone from April 2015, over 300,000 people took advantage of the new “pension freedom” rules.

Currently it is possible for people who have already accessed their pension pots to contribute £10,000 a year into a pension and obtain tax relief on these contributions at the individual’s highest income tax rate. However, in order to close the loophole, the Chancellor is planning to cut the amount that can be paid into pensions in these circumstances from £10,000 to £4,000 from April 2017. This will consequently restrict the amount of pension savings that could otherwise be recycled to take advantage of tax relief.

The Chancellor confirmed however, there would be no change to the current standard Annual Allowance of £40,000 (which is tapered down to £10,000 for higher earners) or the current “Lifetime Allowance” of £1m.