Government urged to ease pension rules to encourage more people in their late 50s and early 60s to re-enter the workforce – and boost the economy
Major financial firms and trade associations are urging the government to ease pension rules to encourage more people in their late 50s and early 60s to re-enter the workforce – and boost the economy .
The group says current restrictions on how much people can contribute to a pension if they have already accessed it in cash are deterring many from returning to work.
In a joint letter to the Treasury, the group – including the likes of the Association of British Insurers, asset manager Fidelity and fund platform Interactive Investor – says the rules present “a barrier to retirement savings”. .
Looking ahead: Government urged to ease pension rules to encourage more people in their late 50s and early 60s to re-enter the labor market and help the economy
The pet peeve is the Defined Contribution Annual Allowance (MPAA). This sets out the maximum pension contributions a person (and their employer) can pay if they have already drawn on their pension for cash, without jeopardizing their right to tax relief on the payments made. In 2017 it went from £10,000 to £4,000.
This reduction caught up with a lot of people. During the pandemic, some people accessed their pension to support their household finances – unaware that it was impacting their ability to save for their pension.
Canada Life says the allowance is now a problem for anyone earning £33,334 where pension contributions (from a mix of employer, tax relief and employee) are 12%. Up to one million people are affected by the allowance.
The insurer says that if the allowance were pushed back to £10,000, the annual cost to the Treasury would be £75m, but that would be offset by tax revenue of £400m.
In the letter to the Treasury, Tom McPhail, director of public affairs at financial consultant The Lang Cat, says the MPAA acts as a “penalty for older workers.” The allowance does not apply to defined-benefit pensions, only to defined-contribution schemes to which most people now contribute. Some pension withdrawals — such as access to tax-free cash — don’t count toward the MPAA.
The government has launched a campaign to get older people back to work – and will be a key part of the budget one week on Wednesday. On Friday, the Treasury said: ‘We are committed to supporting savers and have put in place a range of incentives to encourage people to invest for their retirement.
