The spring budget was relatively quiet from a pensions perspective. The following bullet points highlight the key pension changes announced by the Chancellor;
Money Purchase Annual Allowance
If an individual takes flexible benefits which include income, such as an ‘Uncrystallised Funds Pension Lump Sum’ or flexible drawdown with income, and they want to continue paying contributions to a defined contribution pension scheme, they will have a reduced annual allowance towards their defined contribution benefits. The reduced amount is known as the MPAA, and includes both their own contribution and any other contribution paid on their behalf. The MPAA applies the day after flexible benefits are taken and so any previous savings are not affected.
From 6 April 2017 the money purchase annual allowance (MPAA) was due to reduce from £10,000 per year to £4,000 per year.
However, the government’s decision to call a General Election in 2017 has led to some items being removed from the Finance Bill 2017 and not included in the Finance Act 2017.
This includes the MPAA, which was to go down to £4,000 from 6 April 2017 and would affect anyone who had flexibly accessed their pension savings.
By removing the reduction from the Finance Bill, the MPAA currently remains at £10,000.
The pensions industry are uncertain if the change of the MPAA from £10,000 to £4,000 will form part of future legislation and if so, when. This change could even be backdated to 6 April 2017.
Overseas transfer charge
From 9 March 2017 certain transfers to and from a Qualifying Recognised Overseas Pension Schemes (QROPS) will be liable to a 25% tax charge called the overseas transfer charge.
The charge has been introduced to deter individuals from transferring their pension savings to another jurisdiction for the sole aim of avoiding tax. The charge will not be applied when the transfer is for legitimate reasons, for example, where the transfer is to an employers pension scheme of which the individual is a member.