Canada Life has called for the money purchase annual allowance (MPAA) to be scrapped following the latest flexible pension withdrawals data.
The figures from HM Revenue & Customs showed that 360,000 people withdrew £2.4 billion in flexible payments from their pensions during the fourth quarter of 2020, up 4% on the previous three months and 10% on the same period of 2019. In total, over £42 billion has been flexibly withdrawn from pensions since the pension freedoms were introduced in 2015.
Andrew Tully, technical director, Canada Life, said: “We are now seeing a gradual continuing upwards trend in both the number of individuals opting to withdraw money from their pension savings, and the amount they are choosing to take.
“We have now seen more than £40 billion withdrawn from pension savings since the inception of pension freedoms in 2015. A huge sum of money to be withdrawn in a five year period. This continued growth in the number of individuals accessing their pensions implies that we are seeing more and more working people look to their pension pot to manage their expenses or cover unexpected costs.”
Tully said that it was “absolutely essential” that anyone choosing to access their pension for the first time should be aware of the MPAA, particularly for those of working age who want to continue paying into their pension. The MPAA was designed to restrict the amount of money people can save into their pension once they’ve flexibly accessed it, with the current limit set at £4,000 a year.
Tully added: “With the current savings limit set dangerously low at £4,000 it could severely limit the amount you are able to save in the future. Particularly given the impact of the pandemic, we need to consider a significant increase to the allowance or better still remove it altogether.”
AJ Bell has also called for a review of the MPAA, as it was inevitable that Covid was forcing some people to access pension income income from their pension.
On publication of the data on pension withdrawal, Tom Selby, senior analyst, AJ Bell (left), urged Chancellor Rishi Sunak to “urgently review the MPAA” given the exceptional circumstances.
“The reasons for taking taxable income from your pension could vary from replacing lost salary from employment to helping a younger relative pay their bills or an older relative cover care costs. But regardless of the circumstances, the MPAA is applied indiscriminately and permanently. This enormous annual allowance cut felt unfair during normal times, but at a time when many savers and their families are facing extreme financial hardship it seems particularly cruel.
“Given the impact Coronavirus will continue to have on people’s finances in 2021, there is a strong case for halting the application of the MPAA so people who access taxable income from their pension are not hampered in their ability to rebuild their retirement pot once this crisis is over. At the very least, the Treasury should consider raising the MPAA back to £10,000 – the level it was set at when first introduced in April 2015.”
