Fidelity International has urged the Government to consider four key questions, ahead of a proposed cut to amount of money people can pay into their pensions.

From April 2017, the Money Purchase Annual Allowance (MPAA) is due to be reduced from £10,000 to £4,000.

The MPAA is designed to limit individuals who have already accessed pension savings to 'recycle' this cash back into pensions, benefitting from tax relief for a second time.

Richard Parkin, head of pensions policy at Fidelity International, said the Government needs to consider four key questions before implementing the reduction.

Parkin said the Government must first consider whether there is any abuse of the system already, saying there is little evidence to say there is.

"The change will most impact those who are in good company schemes but choose to cash in another pension pot without realising the consequences," he said.

He also called for more information about who has already accessed their pension, saying the current self-reporting system is unreliable.

"Reducing the MPAA limit further will not fix this and could make things worse."

Parkin said the Government should consider how they will differentiate abuse from normal saving, and whether a reduction in the MPAA was the only option available.

"An alternative might be to only apply the MPAA to personal contributions and not the employer contribution, or people could stop accruing rights to tax free cash after the MPAA has been triggered," he said.

Careful consideration to any changes that could hinder pension freedoms or impact consumer trust in pensions – driven by changes to the rules, must be taken, he added.

"It's right to examine the issue carefully, but these issues are complex and it is important not to push rule changes through quickly, without considering all the options first."

Fidelity is urging the Government to postpone the reduction for 12 months, to establish a better way of limiting recycling without restricting flexibility."

First published 16.02.2017

Lindsay.sharman@wilmingtonplc.com