“Keeping this roadblock to saving for retirement in place isn’t just bad for individuals, it runs counter to stated government policy,” said Selby.
“The government is desperately trying to get older people back into the workforce, yet by setting such a low MPAA it is creating a disincentive by limiting their ability to build or rebuild their pension.
“As a minimum, the chancellor should increase the MPAA to £10,000, the level it was originally established at. However, over the medium term the Treasury should consider whether the MPAA is necessary at all.”
You don’t need to be rich
Though the MPAA was designed to prevent high earners recycling tax-free cash, workers earning less than the average UK salary may find themselves sailing close to the threshold.
Data from Canada Life shows that (see table below) a worker in their fifties who joins a good defined contribution pension scheme only needs to earn above £26,667 to fall foul of the MPAA.
These contribution levels include both employee contributions, employer contributions and tax relief.
Salary levels at which the MPAA is relevant, for different MPAA levels and contribution rates
| MPAA levels | 8% | 12% | 15% | 25.6% |
| At the current £4,000 | £50,000 | £33,334 | £26,667 | £15,625 |
| If reset to £10,000 | £125,000 | £83,333 | £66,667 | £39,063 |
Source: Canada Life. 8 per cent is the default auto-enrolment contribution rate; 12 per cent is the minimum required for the pension quality mark; 15 per cent is the rate required for the pension quality mark-plus; 25.6 per cent is the average contribution rate for a private sector defined benefit pension scheme.
Canada Life estimates between 500,000 and 1mn people in the UK of working age are now restricted by the MPAA, based on the numbers making use of pension freedoms and the fluctuations in employment patterns over the course of the pandemic.
The company estimates the cost to the Treasury of changing the MPAA back to £10,000 at approximately £75mn a year, according to the Treasury’s original impact assessment. However, returning an additional 100,000 to employment on an average wage of £30,000 a year would generate income tax revenues alone of £400mn.
“[It] would help strengthen the UK economy and boost the retirement provision of the hundreds of thousands of workers who left employment during the pandemic,” said Lindsey Rix, chief executive of Canada Life UK
“We believe this is a measure that would positively impact people of all social and economic backgrounds. It would help encourage a return of older experienced staff for many businesses, large or small, and whichever sector they operate in.
“And it will align well with other government policy initiatives, such as the mid-life MOT and auto-enrolment.”
It’s not as simple as that
However, new research from LCP shows that the number of people of working age who are retired is lower now than before the start of the pandemic. By contrast, there are around 333,000 more long-term sick.
Further data shows that the sick would prefer to return to work rather than those of working age who have retired.
The research by LCP found that the growth in economic inactivity is not constrained to just those aged over 50. Almost half (45 per cent) of the chancellor’s 630,000 indicating the growth of inactivity are aged below 50. Many of those under the age of 50 are also in full-time education.
