A controversial decision to slash the Money Purchase Annual Allowance (MPAA) from £10,000 to £4,000 will be put on hold as the Treasury seeks to trim the Finance Bill.
The policy, which was confirmed during the Spring Budget in March, came into effect on 6 April despite industry decrying it as "further damaging trust" in pensions.
However, the government has now tabled an amendment to the Finance Bill to remove the clause as it aims to pass it ahead of Parliament's dissolution on 3 May. The clause is likely to be removed during a debate on the bill on 25 April.
Its removal is likely to cause confusion for schemes, savers and advisers alike as advice will have been given, and taxes may have already been collected on the expectation the policy would be implemented.
Speaking in the House of Commons on Tuesday, financial secretary to the Treasury Jane Ellison confirmed the government would reintroduce all dropped clauses at the "earliest opportunity in the next Parliament", assuming the Conservative Party is re-elected.
However, it is unclear when this will happen and when the policy's effective date will now be.
Royal London director of policy and former pensions minister Steve Webb said the clause's removal should mean the MPAA remains at £10,000 and, for this reason, the government should now delay the policy until the next tax year.
"This clause will be voted out by the government on its own bill and that means it never happened," he said. "Technically, there is nothing that says the MPAA is anything other than £10,000.
"In theory, the Conservatives will win the election but the question is, in July, could they really say ‘you knew we were going to win the election, so we're still going to do it from 6 April 2017'? It would be pretty indefensible."
Others in the industry have called on the Treasury to clearly set out its position.
AJ Bell senior analyst Tom Selby said: "As of now it is not clear whether the MPAA is £10,000 or £4,000 for 2017/18. We assume it remains the government's intention to legislate for the cut after the 8 June General Election, but operating a policy without the legislation that makes it law is far from ideal.
"The bottom line is we need to write to customers telling them what the MPAA is, so as a matter of urgency the government must clarify its intentions."
Nucleus product technical manager Rachel Vahey said the industry was now "in limbo".
"Keeping the MPAA at £10,000 could be a final decision, or it could be a temporary situation, until the legislation can be pushed through after the general election. We now, as a matter of urgency, need clarification from the Treasury. In the meantime, we are all - advisers, clients and providers - left in limbo."
The Treasury is also seeking to cut out a clause which reduces the tax-free dividend allowance from £5,000 to £2,000.
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