Experts give their views on today’s Finance Bill
The reduction of the Money Purchase Annual Allowance from £10,000 to £4,000 for the 2017/18 tax year
Carolyn Jones, head of pensions proposition at Fidelity International described the change as ‘disappointing’ and said it would leave a sour taste in the mouth of consumers and employers alike.
“The dumping of the MPAA changes prior to the General Election was always a postponement of the inevitable. However, seeing it retabled – while expected – is not positive.
“The government had genuine concerns about recycling which it was right to examine carefully however, we have seen there is little evidence of behaviour driven by any dishonesty or urge to play the system. It appears that this change has been introduced to limit behaviours that do not exist and is, therefore, nonsensical.
“However, the impact of a cut in the MPAA will be felt in very real terms by consumers and employers alike. It is set to have a negative impact on employers who are already overburdened with red tape while younger and older consumers whose positive experience of the freedoms will now be coloured by what they may feel is retrospective barriers to getting their money.
“Consumers’ lack of trust in pensions is largely driven by constant changes to the rules and this constant chipping away around the edges only serves to undermine people’s confidence in long term pensions saving due to the constant moving of goal posts.”
Andrew Tully, pensions technical director, Retirement Advantage said: “Our research shows a significant number of people are taking full advantage of the pension freedoms to withdraw money from a pension pot while they or their employer continue to pay in to a pension. Unfortunately, awareness levels of the MPAA among the general public is low, so it’s inevitable people are going to be caught out by this change.
“One of the key benefits of the pension freedoms was the ability to phase withdrawals to fit in with the increasingly flexible approach many people want in later life – taking sums to top up other income, or as a bridging pension until state benefits kick-in. It also allows people to access their pension pot at relatively young ages, for example 55-60, if they have a specific need, for example to pay off expensive debt or to tide people over who have been made redundant. Now the freedom to withdraw funds at earlier ages needs to be accompanied by flashing warning lights, or people may face an unexpected hefty tax charge.”
Tax-free dividend allowance cut from £5,000 to £2,000 from April 2018
Tom Selby, senior analyst at AJ Bell, said: “Clearly a 60% reduction in the dividend allowance will cause many investors to rethink the make-up of their portfolios from next year. The tax penalties on unwrapped dividend payments above £2,000 will be severe – 7.5% for basic-rate taxpayers, 32.5% for higher-rate taxpayers and 38.1% for additional-rate taxpayers.
“Any investors potentially affected by this should consider shifting their investments into tax wrappers like pensions or ISAs, where investment growth and dividend payments are free of tax.”
New £500 financial advice allowance introduced
Selby said: “The advice allowance allows savers to access £500 from their pension savings tax-free up to three times before they reach age 55 in order to pay for regulated financial advice. The measure is one of a series of recommendations from the Financial Advice Market Review, an initiative aimed at improving access to advice following the introduction of the pension freedoms. While it is early days, the signs suggest demand for using the allowance is likely to be relatively low.”