The government has faced further calls to increase the Money Purchase Annual Allowance (MPAA) after analysis from Just Group revealed that, in real terms, the allowance £8,480 less than when it first came into force.

When initially introduced in 2015, the MPAA was £10,000, which, according to Just Group, would now be worth £12,480 if adjusted for rising prices.

However, the allowance was cut to £4,000 in 2017, where it has remained frozen despite recent rising inflation, with Just Group's analysis suggesting that the allowance is worth £8,480 less since 2015 in real terms.

Just Group also highlighted the latest HMRC figures that showed that, since 2015, more than 2 million people have taken flexible payments worth £60bn from pensions, many of whom are subject to the MPAA rules.

Indeed, Just Group group communications director, Stephen Lowe, explained that rising prices and the cost-of-living crisis has seen many people aged over 55 use their pension savings to help them through a financially difficult patch, while wage growth has picked up resulting in higher pension savings.

However, Lowe warned that a low MPAA and higher pensions savings see many people either "hamstrung" in how much they can save or subject to unexpected tax charges.

He continued: "The MPAA is designed to stop people recycling cash back into pensions to double-claim tax relief.

“Back in 2015 with a £10,000 limit, it would have affected relatively few. Reducing it to £4,000 and freezing it since then is capturing thousands of workers each year.

“We would like to see the Chancellor of the Exchequer increase the MPAA in the Spring Budget because the government needs to encourage more of those aged 55+ back into the workforce.

“The rules are complicated which is why we recommend people take the free, independent and impartial guidance from Pension Wise and, ideally, regulated advice from a professional adviser.

“That should help people understand their responsibilities and the consequences of decisions to take pension funds early. It’s not just unexpected tax charges but also the fact that pensions are a valuable perk so you really don’t want to miss out on tax-relief.”

Calls for the government to increase the allowance were also recently heightened after comments from the Treasury revealed that around 25 per cent of pension savers aged 55 and over contributed above the MPAA in 2020/21.

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