The recent news that the withdrawal charge for Lifetime ISAs (LISA) was being dropped from 25% to 20% was very welcome and a pragmatic move by the Treasury.

This means those who access their LISAs for reasons other than first home purchase before 5 April 2021 will effectively only have to pay back the government bonus, and not the penal extra tax charge designed to stop misuse of the product.

It would be great to see the same pragmatism being applied to pensions, specifically the removal, or at very least temporary suspension, of the MPAA for those taking their first flexi-access drawdown or UFPLS payments this tax year.
There will be many who have suffered an unexpected, and hopefully temporary, drop in income, who are over 55 and have pension savings.

There will be those who have already taken all their PCLS so don’t have that option anymore. Both could end up accessing their pensions for further funds, thus triggering the MPAA.

But the issue with the MPAA is that it pushes those with a certain income requirement to take it as PCLS so as to avoid the MPAA, whereas if the MPAA was not an issue, they would be better off taking a combination of PCLS and income to make best use of personal allowances.

The other advantage of crystallising the minimum amount possible, is that the uncrystallised part has time for markets to recover and provide a higher level of PCLS in the future. This could be a significant help towards boosting income in retirement for those that have accessed pensions earlier than planned and have some making up to do.

The MPAA was born out of Pension Freedoms when the principal concern was people taking income for the purposes of recycling, or employers using pension contributions as a tax efficient method of paying older members of their workforce (also avoiding national insurance).

These are not primary concerns right now, and a relaxation akin to that for LISA, could help people not just now, but in rebuilding the bruised pension holdings when things settle down and the economy starts its recovery.

In an ideal world the MPAA would be removed altogether, but whilst that may be wishful thinking, a temporary reprieve may be more palatable to the Treasury. This could make a big difference to some people in the future, and lessen the long term damage done to their pensions by the actions that they take in the present.

Lisa Webster is senior technical consultant at AJ Bell