Over 50s could get £6,000 pension boost next year
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Over-50s who chose to retire early will be able to save an extra £6,000 a year into their pension pot thanks to pending Government legislation. This comes after the Spring Budget announcement by Chancellor Jeremy Hunt this week which outlined changes to the Money Purchase Annual Allowance (MPAA).
The yearly allowance is being raised from £4,000 to £10,000, a £6,000 boost, which “could make a difference” to people’s lives, according to experts.
Introduced by the Government in 2015, this is a restriction on how much someone can put away in their pension pot.
Before this week’s announcement, those who retired early could only save £4,000 annually if they have dipped into their retirement fun early.
This MPAA only comes into effect once older people start to access their pension contributions for the first time which can be done from the age of 55.
Following Mr Hunt’s Budget announcement on Wednesday (March 15), the allowance has been raised to £10,000 which it had been at previously.
Anyone in their 50s who goes over the MPAA threshold may have to pay a tax charge to the Government.
For the average person, the annual allowance for pensions is £40,000 but this will be increased to £60,000 next year.
Mr Hunt rolled out various reforms to the pension system to get over-50s returning to work as part of his “back to work” Budget.
Changes to the MPAA were widely expected by experts as it will allow older people to save more for retirement while coming back to work.
Clare Moffat, the head of technical and marketing compliance at Royal London, spoke exclusively with Express.co.uk about how these changes “could make a difference” to early retirees.
She explained: “If you are someone who has had to access pension money, and so you’ve been restricted into how much you can pay into your pension, then has increased to £10,000.
“Perhaps that has been because of the cost of living or perhaps you have hve retired early, but actually you have to go back to work.
“That could make a difference because you’ve had to access some pension money and then you don’t have as much to live on in retirement.
“If you can pay more into your pension again, then that just means that retirement is going to be better for you in the longer term.”
Other changes announced in the Budget, aside from the hikes to the MPAA and annual allowance, included the abolishment of the pension lifetime allowance.
The retirement expert emphasised that these proposals combined will drastically improve the retirement savings for many people.
Ms Moffat added: “If people have already retired, and have already paid tax charges and have used up 100 percent of their lifetime allowance, then they might just think about not going back to work.
“If you are someone who was thinking about retiring because these tax charges seem too high, then you might with these changes think you do not need to retire now and will not need to reduce your working hours.
“That’s the same with the annual allowance as well. It means that people will not reduce their working hours as much.”
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