“Nucleus recommends the Government thinks again on the reduction in the MPAA to £4,000. We are concerned the reduction in the MPAA sits at odds with the key government policy of encouraging people to work for longer. Pensions freedom and choice was introduced as a way of helping people merge working with taking some retirement income. Reducing the MPAA doesn’t allow those people to fully rebuild their pension income. It shows on pensions freedom the Government is talking the talk, but not walking the walk.
We also believe it goes against the UK’s ethos of encouraging people of all ages to save more in a pension to prepare for their financial needs in later life. For many people it’s only once they reach their 50s and their home life changes, they have the financial means to pay substantially more into a pension.
The aim of the change is to prevent people recycling tax relief. However, no evidence has been presented showing an increase in the level of recycling. Reducing the MPAA will stop some people who have taken retirement income from paying substantial amounts back into a pension to ‘double dip’ on tax relief. But it’s a very blunt tool, and runs the risk of affecting many more people’s retirement plans through ‘collateral damage’.
We would like to see the Government gather better evidence on how people are using pensions flexibility to supplement their working income. And instead of reducing the MPAA we recommend it considers other actions, including tightening the pension recycling rules to better focus on preventing people from abusing the tax system.”