Government urged to relax rules on pension rebuilding after Covid-19

Webb said that over 55s who access their pension pots for emergency cash to tide them over and those whose investments have fallen substantially in value in recent weeks as markets have tumbled, especially those who are already drawing on some of their pension, will be particularly affected.

Both groups will be hit by a limit on future pension contributions if they plan to rebuild their pensions.

Under the rules of the Money Purchase Annual Allowance, in most cases those who have taken taxable cash are limited in future to £4,000 per year in contributions on which pension tax relief can be claimed.

Steve Webb is calling for that £4,000 to be lifted, at least to the £10,000 cap which applied when the MPAA was first introduced, if not abolished altogether.

He said: "Many people will have seen the value of their pension savings tumble in recent weeks, and others may feel that they have no choice but to access their pension savings to tide them over short-term financial pressures. In both cases, pension savings could be severely dented.

"Once the present crisis is over some people will be in a position to start building up their pension again, especially if they are still in work. The government must support people in this rather than put barriers in place. The current £4,000 limit is far too low.

"If it cannot be abolished altogether it should at the very least be raised to the £10,000 figure from a few years ago. Rebuilding pension savings is going to be a challenge for many, so the government needs to show it is on people’s side, not standing in their way."