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Legal Update

Uncertainty over reduction to money purchase annual allowance

2 May 2017
Mayer Brown Legal Update
The Finance Act 2017 received Royal Assent last week. Amendments were made to the Act to ensure that it could complete its passage through Parliament before Parliament is dissolved ahead of the general election. Among the provisions removed was the reduction of the money purchase annual allowance (“MPAA”) to £4,000 which was due to take effect from 6 April 2017.

According to the Treasury, the reduction of the MPAA remains government policy, and the government will legislate for its introduction as soon as possible after the election. However, there is of course no guarantee that the same government will be in power following the election.

This creates an issue for schemes – the relevant legislation currently states that the MPAA is £10,000 but this may or may not be reduced at some point later this year to £4,000 with effect from 6 April 2017.

In our view, pending confirmation of when (or indeed if) the MPAA will be reduced, the safest approach for trustees is to administer the scheme on the basis of the current legislation (i.e. an MPAA of £10,000), but to also let members with DC benefits know that there is a strong possibility that the MPAA will be reduced to £4,000 with effect from 6 April 2017. Members with DC benefits may wish to bear this in mind when deciding whether to flexibly access those benefits for the first time (thereby becoming subject to the MPAA) or, if they are already subject to the MPAA, when deciding the level of their DC contributions in the 2017/18 tax year.
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