Government pushed for relaxation of pension rules to get more people in their late 50s and early 60s back to work – and to help stimulate the economy
Leading financial companies and trade associations are urging the government to relax pension rules to encourage more people in their late 50s and early 60s to return to work – and to help stimulate the economy.
The group believes that current restrictions on the amount people can contribute to a pension if they have previously used it for cash is preventing many from returning to work.
In a joint letter to the Treasury, the group – comprising The Association of British Insurers, asset manager Fidelity and fund platform Interactive Investor – says the rules are “a barrier to retirement savings”.
Looking ahead: Government urged to relax pension rules to encourage more people in their late 50s and early 60s to return to work and help the economy
The bugbear is the Annual Cash Purchase Allowance (MPAA). This defines the maximum pension contributions an individual (and their employer) can make if they have already cashed their pension – without jeopardizing their right to tax relief on the payments made. In 2017 it was reduced from £10,000 to £4,000.
This reduction has made many people think. During the pandemic, some people used their retirement to support their household finances, unaware that they were eroding their ability to save for retirement.
Canada Life says compensation is now an issue for anyone earning £33,334, with pension contributions (from a mix of employer, tax credit and employee) standing at 12 per cent. Up to a million people are affected by the surcharge.
The insurer says that if the allowance were pushed up to £10,000, the annual cost to the Treasury would be £75m, but this would be offset by resulting tax revenue of £400m.
In the letter to the Treasury, Tom McPhail, director of public affairs at financial advisor The Lang Cat, says the MPAA acts as an “older employee penalty.” The supplement does not apply to defined benefit plans, but only to money purchase plans to which most people now contribute. Certain retirement withdrawals — such as access to tax-exempt cash — don’t count toward the MPAA.
The government has launched a campaign to get the elderly back to work – and will be a major part of the budget on Wednesday. On Friday, the Treasury said: “We are committed to supporting savers and have introduced a range of incentives to encourage people to invest for retirement.”