Pensions are one area that chancellor Jeremy Hunt is expected to look at hard as he considers ways to balance cash raising and growth in the Budget on March 15.
The money purchase annual allowance (MPAA) is one option, with a tweak to help older people going back to work and ease pressures faced for retirees, Helen Morrissey, senior pension analyst at Hargreaves Lansdown, told Proactive.
“The different types of allowances can be very complicated, and we would like to see the government review this pension tax systems to simplify it,” Morrissey said.
Currently, annual pension contributions of up to £40,000 annually are allowable for tax relief, including anything from work schemes.
However, if a person flexibly accesses their pension the yearly contribution allowance falls to £4,000, meaning tax relief for any additional contributions is required to be repaid.
This can be detrimental for people who have had to dip into the pension fund before retirement, gone back to work after retiring or are unaware of the MPAA, Morrissey said.
“A lot of retired people now feel they need to go back to work because of the cost-of-living crisis,” the analyst added.
“We’re going to have a lot of people who need to rebuild their pensions.”
The government has been pushing for older generations to go back to work since the pandemic ended.
In a speech to Bloomberg last month, Jeremy Hunt said: “Those who retired early after the pandemic or haven’t found the right role after furlough, I say: ‘Britain needs you’.”
Potential changes to the tax free 25% people can withdraw once they have retired have also been rumoured.
However, it would require a “very brave move” from the chancellor -Morrissey believes- as she argues “the 25% tax free cash is a hugely popular element of pension schemes.”