Government confirms timings for new pensions legislation

Couple in retirement

We’ve alerted you in the past to the Chancellor’s plans to make changes to both the Money Purchase Annual Allowance and the tax-free pensions advice allowances.  And we told you that these plans were a little up in the air in the aftermath of the General Election announcement before the summer. Our advice then was a cautious approach, until the timings for implementation were clarified. In July 2017 the government confirmed that a number of provisions that had been announced but delayed would apply with effect from the 2017/18 tax year. Bills haven’t yet been passed by Parliament but when they do so, they will apply retrospectively.

Money Purchase Annual Allowance (MPAA)

This is the measure that allows people who’ve flexibly accessed their pension to rebuild their pot while limiting their ability to recycle pension contributions and take advantage of tax relief. The moment you start accessing taxable income (25% is usually tax-free) either the entire amount or as a proportion under flexi-access drawdown or via uncrystallised funds pension lump sums the MPAA  will be triggered. This reduces the amount you can pay into money purchase pensions without suffering a tax charge. With effect from 6 April 2017 the MPAA is reduced from £10,000 to £4,000. We wrote about how this could affect how much you can pay in an earlier article.

Pensions advice                                                        

The Government has also taken steps to address the difficulty faced by individuals in paying for financial advice – and we’ve said time and again that good advice can make a huge difference in outcomes. It announced a new Pension Advice Allowance of up to £1,500, which coupled with an increase in the tax-exemption for employer-paid pension advice to £500 could make paying for advice a much more palatable option for many savers. Click here and read our article for more detail on how it works.

Implications

The new and increased advice allowances are welcome of course, but while it might make access to professional advice more affordable for individuals and more attractive for employers, it won’t be a silver bullet to solve the advice gap. What’s more the significant drop in MPAA has the potential to land individuals with a fairly hefty tax bill, if care isn’t taken, even with smaller pots. So at the risk of repeating ourselves we’ll say again, if you’re in any doubt, do seek professional advice.

Sources: https://www.gov.uk/government/publications/list-of-provisions

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