The reduction to the money purchase annual allowance (MPAA) and the introduction of the £500 tax-exempt employer-arranged pensions advice allowance are to apply retrospectively from April 2017.
These measures were due to be legislated for in the Finance Bill 2017. However, following the announcement of the snap general election on 8 June 2017, a number of measures were dropped from the Finance Bill in order to expedite its passage through Parliament. At the time, Jane Ellison, former financial secretary to the Treasury stated that the provisions withdrawn from the bill would be legislated for at the earliest opportunity at the start of the next Parliament.
The Finance Bill received Royal Assent on 27 April 2017, becoming the Finance Act 2017.
Chancellor Philip Hammond unveiled plans to reduce the MPAA from £10,000 to £4,000 in the Autumn Statement 2016. This restricts the tax-relieved amount that individuals who have accessed their pension savings through the pension freedoms can contribute to their defined contribution (DC) pensions. The reduction is designed to limit the recycling of pension savings to take advantage of tax relief.
In March 2017, the government confirmed that no transitional arrangements would be put in place, and that the reduction would apply to those who have accessed or will access their pensions flexibly, regardless of when the decision to make use of the freedoms occurred.
The tax exemption for the first £500 worth of pensions advice provided to an employee in a tax year was first announced by former Chancellor George Osborne in the March 2016 Budget. This replaces a £150 cap on tax-free employer-arranged advice, and also allows for advice on general financial and tax issues relating to pensions.
On 13 July 2017, the government confirmed that a second Finance Bill 2017 will be introduced following the summer recess to legislate for all the policies that were excluded from the Finance Bill in order to pass it into law ahead of the general election. It also confirmed that all policies that were originally due to come into force from April 2017 will still be effective from that date.
Mel Stride, the financial secretary to the Treasury, said: "The Finance Bill introduced in March 2017 provided for a number of changes to tax legislation that were withdrawn from the bill after the calling of the general election. The then-financial secretary to the Treasury confirmed at the point they were withdrawn that there was no policy change and that these provisions would be legislated for at the first opportunity in the new Parliament.
"The government confirms that intention. It expects to introduce a Finance Bill as soon as possible after the summer recess containing the withdrawn provisions. Where policies have been announced as applying from the start of the 2017-18 tax year or other point before the introduction of the forthcoming Finance Bill, there is no change of policy and these dates of application will be retained. Those affected by the provisions should continue to assume that they will apply as originally announced."
Rona Train, partner at Hymans Robertson, said: "This decision, which will save the government around £70m per annum has been made at the great expense of those wanting or needing to supplement their retirement income. The government is clearly trying to stamp out recycling pension savings, whereby people could get a double hit of pensions tax relief by withdrawing money from their pension and then re-investing it. However, retirement is no longer the cliff-edge event seen in previous generations and is now often a process that continues over a number of years. In some cases, savers are simply unable to retire early but will equally struggle to continue working full time, whether this be for health reasons or caring responsibilities. In these cases, the government should be doing all it can to offer support.
"While this decision, undoubtedly, will bring clarity for trustees, it remains contradictory to the ethos of pension freedoms. For too long now, trustees have been unable to provide definitive guidance to their members and some members may already contributed more than the £4,000 allowance as a result. They will feel the full force of this proposal given its retrospective enforcement."
