MPAA
The fourth development in the pension tax infrastructure relates to those who have drawn income from defined contribution schemes. The government will return the money purchase annual allowance back to the 2017 figure of £10,000 from where it currently stands at £4,000.
The MPAA, introduced in 2015 to coincide with pension freedoms, is the amount a person who has already begun drawing on their pension can pay back into their retirement pot each year without incurring a tax charge.
Shaw says those who have previously flexibly accessed pensions in the pandemic and cost of living crisis would have been stung with the MPAA.
But now these individuals will have wider flexibility to continue to contribute up to the revised allowance of £10,000, subject to their circumstances and income being suitable.
Shaw says: “Those affected who remain in employment may now be able to take advantage of employer auto-enrolment schemes, which may have been more challenging previously with the lower MPAA of £4,000.”
Verona Kenny, managing director of Intermediary at 7IM, adds: "The changes announced in the latest Budget are targeted at a far more specific demographic. That said, these changes are in no way less important for those being affected, as they provide further flexibility for the retirement planning journey.
"It’s fair to say this is a huge deal and represents an opportunity for the industry to demonstrate its value once again, and to innovate to provide the best possible solutions to ensure people achieve their retirement goals.”
Working for longer?
The new tax regime is being rolled out, Hunt says, to keep people in work for longer and to halt the exodus of senior NHS staff, caught by the various tax limits.
According to Rowley Turton's Gallacher, while retirement decisions may be influenced by a variety of factors, including stress at work, the removal of the LTA may encourage high earners with large pension pots to continue working.
Other higher earners, particularly those in public sector defined benefit schemes, may also have retired early due to LTA and AA issues.
Charles Stanley's Bell agrees: “With doctors, a significant benefit to them is their DB pension scheme and it makes up a solid portion of their total remuneration benefit.
"Experienced doctors on high salaries have been breaching the annual allowance and thus face a tax bill from their income, while also knowing that the contributions are going to be hit by the lifetime allowance when it comes to crystallising.
“This has made it far less attractive to stay working. It may not entice those who have tasted the joys of retirement back to work (although it may), but it may not force early retirement like the current situation. This isn’t just doctors, however. The same goes for high earners with DB schemes such as senior civil servants.”
