Pension rule changes shelved ahead of General Election
People saving for their retirement can stash £40,000 into their pension pot each year while those aged 55+ have a restricted annual allowance known as the Money Purchase Annual Allowance (MPAA).
In the Autumn Statement last year, the Chancellor announced the MPAA would be cut from £10,000 a year to £4,000 from 6 April 2017, affecting around 3% of over 55s.
The move aimed to prevent the “inappropriate double tax-relief” advantage of people withdrawing money from their pension pot and recycling it back in again, gaining more tax-relief on the sum.
The MPAA cut came into effect on 6 April 2017, which means many individuals would have received advice and guidance to navigate the lower threshold, but the policy still required assent as part of the Finance Bill.
Following the snap General Election call, parliament is set to be dissolved on 3 May and the MPAA cut will not be included in the Finance Bill.
Claire Trott, head of pensions strategy at Technical Connection, said: “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.”
Other changes on hold
The snap General Election call has already seen the unpopular ‘death tax’ fee hike put on hold, which is good news for consumers.
But another, more negative effect is that the £500 tax-free allowance for employer-funded pension advice has been shelved.
The allowance went up from £150 to £500 per employee on 6 April, but this change has been scrapped.
Tom McPhail, head of policy at Hargreaves Lansdown, said politically, it makes sense to ditch unpopular policies during an election campaign, in order to avoid upsetting voters but the cut to the pension advice allowance is disappointing.
“The Government’s decision to drop the increase to the £500 advice allowance financed by employers, as well as the inevitable suspension of the cold-calling ban are disappointing, particularly as these are not contentious measures. Investors are reaching retirement every day and are missing out on the benefits of these interventions. We hope to see these measures reinstated the other side of the election, if the Tories win.”
The new Pension Advice Allowance, allowing people to withdraw £500 on up to three occasions from their pension pot to pay for financial advice, which came into force earlier this month, has not been changed.
Dividend allowance cut
Another unpopular measure which has been shelved for now is the tax-free dividend allowance cut from £5,000 to £2,000 due to take effect from April 2018.
The measure would have affected around 2.27 million individuals with an average loss of £315, ranging from employees and directors of small businesses who remunerate themselves partly or wholly through dividends rather than salary, as well as investors with dividend generating shares and funds held outside of ISAs and pensions.