Government should scrap the MPAA and LISA exit penalty to help savers hit by Coronavirus crisis

•    Government urged to scrap the money purchase annual allowance (MPAA) as part of Coronavirus response, enabling over 55s who access taxable income from their pension to rebuild their pension savings quickly once the crisis is over
•    The Lifetime ISA (LISA) exit penalty should also be reduced from 25% to 20% to help younger savers 
•    These measures would make it easier for millions of people to use their savings to plug short-term income gaps during the Coronavirus crisis

Tom Selby, senior analyst at AJ Bell, comments: 

“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.
“There are also over 200,000 people with Lifetime ISAs who would be hit with a 25% exit penalty if they accessed their fund to make ends meet. Recent stock market falls means they will already be getting back less than they put in and the exit penalty punishes them further. (see example below). 
“Given many LISA holders will now be facing significant employment uncertainty, we urge the Treasury to reduce this to 20%, 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.”

Lifetime ISA example: