"We have looked at it from every possible angle and in the end our only answer to the Treasury is: ‘Just don’t do it’."
The Treasury plans to reduce the amount people can save into their pension once they have used the new pension freedoms.
The Treasury rationale for the existence of the MPAA and now for extending it, is 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 speaking after the Autumn Statement, where the plans were first announced, former pensions minister Steve Webb says that "cutting this allowance flies in the face of efforts to make retirement more flexible", stating that it will have a "profound impact" on people's ability to go on working and contributing worthwhile amounts to a pension.
According to HMRC data, over half a million investors have already taken advantage of the pension freedoms and so are immediately caught by this reduced allowance for future pension saving.
Hargreaves Lansdown argues that changing work patterns, including later life working and job breaks to care for elderly relatives mean more and more people will need temporary access to their pension savings before resuming earning and saving.
It also says that increasing numbers of auto-enrolment scheme members will be caught by these restrictions, adding that members of occupational DC pension schemes written under trust are particularly at risk as many won’t have the option to use drawdown.
Analysis of Hargreaves Lansdown investors who have used the new Uncrystallised Funds Pension Lump Sum rules shows that a substantial proportion, 41% are under the age of 60; for these investors there is a high likelihood that they’ll want to make further pension investments in the future.
The provider has also raised concerns that the measure is targeted solely at DC savers, "whilst those lucky enough to receive a DB pension will be free to recycle their pensions: the Treasury rule change won’t stop them at all". This is backed up by figures showing that DB pensions take up around 85% of pension contribution tax relief, whilst only around 15% goes to DC investors.
Hargreaves Lansdown has recommended the Treasury drop this proposed policy change entirely.
Tom McPhail, Head of retirement policy at Hargreaves Lansdown, said: “This proposal is symptomatic of a government that has lost sight of the importance of putting individuals first. It is the worst kind of policy-making: it inconveniences and disproportionately penalises millions of ordinary investors and its barely going to save the government any money.
“We have searched hard for a solution to the questions posed by the Treasury; we have consulted with industry peers; we have looked at it from every possible angle and in the end our only answer to the Treasury is: ‘Just don’t do it’.
“Nationally we are trying to promote a culture of saving and investing for our future. With the decline of traditional final salary pensions, individuals have to take responsibility for their own retirement. It is up to the pensions industry, employers and the government to help them. This makes it all the more disappointing when you see the government proposing policies which undermine our ability to help investors achieve their goals.”
