Government urged to relax MPAA during Covid-19

The firm has written to the Chancellor, Rishi Sunak, recommending a series of measures to avoid "unfair pension tax penalties" being imposed on people returning to work after the pandemic.

Quilter is concerned those age over 55 may use their pension to cover a loss of earnings during the Covid-19 pandemic. In order to prevent them suffering tax penalties when they return to work, it is calling on the government to waive MPAA triggers for the 20/21 tax year so that people taking money from their pension during the crisis retain their normal annual allowance.

It also wants the MPAA to be restored to £10,000 a year to ease annual allowance concerns for the majority of workers.

The annual allowance is currently capped at £40,000 but a lower limit of £4,000 applies once someone aged over 55 accesses their pension, triggering the MPAA.

Quilter’s analysis of contribution rates shows that workers with earnings ordinarily of around £50,000 and above can expect to be impacted in the future if they make a pension withdrawal.

Auto-enrolment contribution rates are currently set at a minimum of 8% on ‘band earnings’ of between £6,240-£50,000 a year. It means someone on a salary of £50,000 making even the bare minimum contribution would use more than 87% of their annual allowance once they trigger the MPAA. Those wanting to save more than the minimum would almost certainly breach their annual allowance.

Jon Greer, head of retirement policy at Quilter, said: “With millions of people being furloughed or made redundant, a huge number of people could be unfairly penalised. Those that use their pension to top-up their income now will see their annual allowance cut by 90% for the rest of their career once they return to work.

“The Covid-19 pandemic is damaging career prospects today, but we must limit the long-term impact on our prosperity. We are calling for the relaxation of the MPAA so that nobody is prevented from saving for a prosperous retirement due to this crisis.”