- Canada Life has successfully lobbied the government to increase the Money Purchase Annual Allowance (MPAA) from £4,000 to £10,000
- This new policy will help strengthen the economy, by encouraging older workers back into the workforce
- It will also provide benefits across the social and economic spectrum
- However, there is very little awareness among consumers who may be affected by the MPAA, no matter whether the threshold is £4,000 or £10,000
Canada Life called on the Treasury to increase the Money Purchase Annual Allowance (MPAA). Following a paper submission to the Treasury which set out the arguments to review the threshold, plus acting as a co-signatory on an open letter, the pension provider’s efforts have paid off. It was announced in the Spring Budget that the MPAA will be restored to £10,000, which was the original allowance in 2015 before it was cut in 2017 to just £4,000.
The lower limit restricted future pension savings for those who have flexibly accessed their pension, removing the benefit of tax relief on annual contributions of more than £4,000. It penalised and discouraged older workers who have taken time out from employment, drawn on their pensions and wished to resume saving for retirement.
This welcome change to the MPAA helps those who have accessed their pension pot at relatively young ages, for example 55-60, to pay off expensive debt, cope with the current cost-of-living crisis, or to tide people over who have been made redundant.
Lindsey Rix, Canada Life’s UK CEO said:
“I am delighted the Chancellor has hugely simplified the pension tax landscape. This is a brilliant Budget which will not only help to strengthen the UK economy but will also boost the retirement provision of the hundreds of thousands of workers who may now be tempted back into the workforce.
“We made a clear call for an increase in the Money Purchase Annual Allowance and are delighted that the Chancellor was listening.”
Salary levels at which the MPAA is relevant, for different MPAA levels and contribution rates
|
MPAA levels |
8% |
12% |
15% |
25.60% |
|
At £4,000 |
£50,000 |
£33,334 |
£26,667 |
£15,625 |
|
At £10,000 |
£125,000 |
£83,333 |
£66,667 |
£39,063 |
Source: Canada Life. 8% is the default auto-enrolment contribution rate. 12% is the minimum required for the Pension Quality Mark. 15% is the rate required for the Pension Quality Mark+. 25.6% is the average contribution rate for a private sector defined benefit pension scheme.
How many people are affected?
Canada Life estimates between 500,000 and 1 million people in the UK of working age were restricted by the MPAA at the lower threshold of £4,000. This is based on the numbers who have used the pension freedoms and the fluctuations in employment patterns over the course of the pandemic.
How much would it cost?
The cost to the Treasury of changing the MPAA back to £10,000 is very modest relative to the potential benefits. Clearing this obstacle to employment for hundreds of thousands of older workers would cost around £75 million a year, according to the original Treasury impact assessment. By comparison, getting an extra 100,000 people back into employment on an average wage of £30,000 a year, would generate income tax revenues alone of £400 million.
ENDS
Notes to editors
- A full copy of Canada Life’s Budget submission is available on request.
Enquiries:
Press enquiries should be directed to:
Paul Keeble, Canada Life, 07833 085387, Paul.Keeble@canadalife.co.uk
About Canada Life:
Canada Life is part of a group of companies controlled by Great-West Lifeco Inc., a diversified financial services holding company headquartered in Winnipeg, Canada. Through its subsidiary companies, Lifeco has operations in Canada, the United States, and Europe. Great-West Lifeco and its insurance subsidiaries have received strong ratings from major rating agencies. Great-West Lifeco has over 30 million customers worldwide and £1.341 trillion assets under administration (as at 31.12.21).
Canada Life Limited began operations in the United Kingdom in 1903 and looks after the retirement, investment and protection needs of individuals and companies alike. As well as providing stability and security through its individual contracts, Canada Life Limited has grown to become the leading provider of competitively priced group insurance solutions.
Canada Life Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered in England and Wales no. 973271. Registered office: Canada Life Place, Potters Bar, Hertfordshire EN6 5BA. Canada Life Platform Limited, trading as Canada Life, is a subsidiary of The Canada Life Group (UK) Limited, and is authorised and regulated by the Financial Conduct Authority. Registered in England and Wales no. 8395855. Registered office: Canada Life Place, Potters Bar, Hertfordshire EN6 5BA.