"The likelihood is this is a delay to the reduction in MPAA, but we need to know this for sure. In the meantime, we are all – advisers, clients and providers - left in limbo."
The planned MPAA reduction from £10,000 to £4,000 will no longer be included within the Finance Bill.
The legislative clauses to be left out not only include MPAA, but also the new pension advice allowance and the reduction to the dividend-free allowance to £2,000 a year.
The government first announced plans to cut MPAA for those who have used the pension freedoms in last year's Autumn Statement. It argued that investors could draw money out of a pension and then subsequently reinvest it in a new pension, thereby scooping up extra tax relief, however the move was met with widespread criticism from the pensions industry.
The Pension Advice Allowance was due to launch this month, enabling savers to withdraw up to £1,500 from their pension pots tax-free to pay for financial advice.
Plans to ban cold-calling are now also likely to be put on hold. However industry experts predict that the amendments will be a delay rather than a complete 'u-turn'.
Rachel Vahey, product technical manager at Nucleus, said: "This does not necessarily mean this policy has been dropped, or ‘u-turned’. We are in extraordinary times, and the Treasury needs to make sure the Finance Bill can receive Royal Assent before the General Election. Keeping MPAA at £10,000 could be a final decision, or it could a temporary situation, until the legislation can be pushed through after the General Election.
"We now, as a matter of urgency, need clarification from the Treasury. Advisers have been working with their clients on how to adjust to a much lower MPAA, and advisers and providers have changed processes and literature. The likelihood is this is a delay to the reduction in MPAA, but we need to know this for sure. In the meantime, we are all – advisers, clients and providers - left in limbo.
Steve Webb, Director of Policy at Royal London, added: "The Election means that there is not time for some contentious changes, like the cut to the Money Purchase Annual Allowance, to be passed into law. Savers will now be confused as to how much they can put into a pension. It would seem that the allowance remains for now at £10,000, and in my view it would be quite wrong for a new government to impose the £4,000 figure retrospectively. I would prefer that the cut did not happen at all, but if a cut has to be made it should at least be delayed until 2018."
Tom McPhail, head of policy at Hargreaves Lansdown, commented: “The government is rushing through the legislation wash-up, prioritising key policy measures and jettisoning anything which could slow-up the process. The good news is the suspension of the cuts to the Money Purchase Annual Allowance and the dividend allowance, however investors would be wise not to assume this is a permanent reprieve.
“Politically, it makes sense to ditch unpopular policies during an election campaign, in order to avoid upsetting voters. The MPAA cut in particular is particularly pernicious as it is retrospective. We do currently expect to see these changes reintroduced the other side of the election, in the event of a Tory victory. We suggest investors should continue to assume that by the end of this tax year, they may have to work within the reduced MPAA and dividend tax allowance.
“The Government’s decision to drop the increase to the £500 advice allowance financed by employers, as well as the inevitable suspension of the cold-calling ban are disappointing, particularly as these are not contentious measures. Investors are reaching retirement every day and are missing out on the benefits of these interventions. We hope to see these measures reinstated the other side of the election, if the Tories win.”
