Hammond's pension own-goal? Over-55's flexible working under threat

Oliver Gill
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Many pensioners are expecting to supplement pension incomes with employment pay

Tax relief on pension top-ups is to be drastically reduced for those already drawing an income from retirement savings.

Over-55's drawing an income from pension pots can currently put £10,000 per year away tax free – known as the money purchase annual allowance (MPAA).

But Chancellor Philip Hammond announced plans within his Autumn Statement to reduce the allowance to £4,000 from April 2017 – although the plans are subject to a government consultation.

Read more: Enthusiasm for Osborne's pension freedoms is waning as withdrawals fall

Jon Greer, a pensions specialist at Old Mutual, explained the logic behind the plans: “Philip Hammond is targeting the potential to recycle pension savings to reduce tax."

But the problem according to Greer, is research suggests that many over-55's are using a drawdown from pensions to supplement employment incomes.

Increasingly 50-75 year olds are using temporary and flexible work as a way to fund their retirement. Our YouGov research with UK adults aged 50-75 found that 30 per cent expect a job to help fund their future retirement income needs.

These people may need to access their pension flexibly, but may also look to fund back into the pension in periods when alternative income is higher, thereby sustaining their long term pension provision.

Chris Noon, a partner at Hymans Robertson agreed: "The government is clearly trying to stamp out recycling pension savings – whereby people could get a double hit of pensions tax relief by withdrawing money from their pension and then re-investing it... ‘Retirement’ is no longer a cliff-edge event. It’s a process over many years.

“As we see a shift of more people retiring with defined contribution than defined benefit pensions we’ll see more people unable to retire early. But for some, working full time into later years will be a struggle – either for health reasons or because they have care responsibilities."

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Aside from this policy, pensions were left largely untouched by Hammond in the Autumn Statement. However this policy, along with the announcement earlier this month to abandon plans for a secondary annuity market, was a further sign of rolling back in George Osborne's flagship pension freedoms according to PwC pensions partner Steven Dicker.

The reduction of the MPAA from £10,000 to £4,000 which, while designed to prevent tax relief recycling, was arguably a step backwards for pension flexibility for those drawing their pensions while still working.

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