Press Release: Curb on pension cash recycling leaves unanswered questions, say tax campaigners
Once a person has accessed pension savings flexibly, if they wish to make any further contributions to a defined contribution pension, tax-relieved contributions are restricted to the MPAA. The reduction in the MPAA is designed to further limit individuals who have already accessed pension savings to recycle this cash back into pensions and thereby benefit from tax relief for a second time.
LITRG warned of the consequences for the unwary of the reduction from 6 April 2017 in the MPAA from £10,000 to £4,000 a year, in a consultation response last month. It said that some people might unwittingly be caught out by the change. The group asked for two key safeguards: first, that the level of the MPAA be kept under review; and second, that the taxpayer would be able to recover any tax charged as a result of inadvertently exceeding the MPAA from the pension fund.
Anthony Thomas, Chairman of LITRG, said:
“The consultation response document published today gives a welcome commitment to keeping the MPAA under review but it is concerning that there is no explicit commitment to the exact terms of such review. We are simply told that it ‘will be kept under regular review, as are all aspects of the tax system’ [response document, para 2.8]. Given that the Office of Tax Simplification’s ‘List of tax thresholds’ shows that there are many such monetary limits in the tax system that have been far from regularly reviewed, we would have preferred a clear commitment to a review at least every three years. This is particularly concerning given that pensions freedom is still in its infancy and it may still be too early to predict its impact on savings patterns.
“It is disappointing to note that the response to the consultation does not register our suggestion that it should be made possible for any tax charge created by exceeding the MPAA to be paid out of the pension fund itself, rather than resting with the member. We would be more comfortable with the proposed change if those of limited means were safeguarded from financial hardship if they unwittingly trigger a tax charge on pension savings in excess of the MPAA.”
LITRG also commented in its response to the consultation that some of the guidance on the MPAA currently provided on various government websites is disjointed, inadequate and potentially misleading. The group continues to urge that this is reviewed as a priority and that it is kept under review as the programme of change for public financial guidance develops.