The government should scrap the money purchase annual allowance (MPAA) as part of its response to the COVID-19 pandemic, according to AJ Bell.

The firm argued that scrapping the MPAA would enable over-55s who access taxable income from their pension to rebuild their pension savings quickly once the current crisis has passed.

This echoes calls from former pensions minister and LCP partner, Steve Webb, who called for the rules to be relaxed, if not abolished, and suggested an upper limit of £10,000, rather than the current £4,000.

In addition to this though, AJ Bell have also called for a reduction of the Lifetime ISA (Lisa) exit penalty, suggesting that this be reduced from 25 per cent to 20 per cent.

It argued that this would support younger savers in particular, with recent stock market falls meaning that many will get back less then they put in, while the exit penalty "punishes them further".

The firm said that the measures would make it easier for “millions of people” to plug short-term income gaps during the COVID-19 crisis.

AJ Bell senior analyst, Tom Selby, commented: “With the UK staring down the barrel of economic disruption and potentially substantial job losses as a result of the coronavirus pandemic, it is important the savings system doesn’t unnecessarily penalise individuals responding to unprecedented circumstances.

“At the moment, anyone who accesses taxable income from their pension is hit with the MPAA, lowering their annual allowance from £40,000 to just £4,000.

"In tough times it is likely more people will turn to their retirement pot to cover a short-term income gap, and in these circumstances it feels unfair to handicap their ability to rebuild their retirement savings once the crisis has lifted.

Selby added: “There are also over 200,000 people with Lisas who would be hit with a 25 per cent exit penalty if they accessed their fund to make ends meet.

“Given many Lisa holders will now be facing significant employment uncertainty, we urge the Treasury to reduce this to 20 per cent, so the charge just returns the upfront bonus plus any investment gain or loss.

"This means younger investors would only suffer market losses on their original investment rather than an additional penalty from the government.”

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