“Hidden traps” such as the Money Purchase Annual Allowance (MPAA) could await savers looking to access their pensions to bridge a short-term income gap amid the current crisis, LEBC has warned.

The firm highlighted that once the allowance is triggered, the saver loses the right to carry forward any pension savings relief not used in the three earlier years, acting as a "wholly inappropriate" barrier for those looking to rebuild their retirement savings.

Also echoing the warnings of other industry experts, the firm stressed that the allowance, which would restrict future tax relieved pension savings to no more than £4,000 a year, would be a “nasty shock” for savers who looked to rebuild their savings after the crisis.

The firm has now called for the savings limit to be raised back to its originally limit of £10,000, in line with previous suggestions from LCP partner and former pensions minster, Steve Webb.

LEBC director of public policy, Kay Ingram, explained: “This restriction is little understood by the majority of savers and comes as a nasty shock to those who thought they could withdraw funds from their pension for short-term needs and rebuild their savings.

“It is wholly inappropriate for the government to place an obstacle of this nature in the way of prudent savers, needing temporary access to their pension savings."

She continued: “A proportionate response would be to increase the MPAA limit on future pension savings back to £10,000 a year.

“Until that happens, those requiring flexible access to their pension savings should seek advice as it is in many circumstances possible to avoid the impact of this rule.”

Share Story: