Advisers are hesitant to recommend clients venture above the £4,000 money purchase annual allowance (MPAA) despite the government's decision to delay its proposed reduction to at least after the General Election.
Advisers described the decision to stick to the £4,000 threshold, as opposed to using a full £10,000 allowance, as a more "sensible approach, to play it safe".
The MPAA is the amount that can be paid in one year to a person's money purchase arrangements without a tax charge applying, if they have flexibly accessed their benefits.
The government had proposed to cut the MPAA from £10,000 to £4,000 in the Spring Budget but in response to the Prime Minister's snap General Election, removed the relevant clause from the Finance Bill last week.
Although financial secretary to the Treasury Jane Ellison confirmed the government would reintroduce all dropped clauses at the "earlier opportunity in the next Parliament", it remains unclear when this will happen, and when the policy's effective date will be.
Informed Choice managing director and IFA Martin Bamford said he and his firm had agreed to assume the MPAA was still £4,000.
"While the legislation didn't go through, it would just be too much risk if it was to be enacted retrospectively once a new government is in place," Bamford said.
"All of the signals and signs we're hearing suggest it's going to be £4,000 and I see no sense in intentionally breaching it and going to £10,000 and having to deal with the consequences later.
"If it stays at £10,000 for any reason, there will still be plenty of time between the general election and new parliament, and new tax year - we're in no rush," he added.
Playing it safe
Advies IFA Alex Reynolds agreed with Bamford. He said: "I would advise clients to go with the £4000 and then look to make a further contribution later in the year once there is clarity over whether it will apply from next tax year or this tax year."
Chase de Vere certified financial planner Patrick Connolly also agreed the safe option was to assume a £4,000 MPAA, and said there was very little to lose out on even if the MPAA remained at £10,000 for this tax year.
"All [clients] are missing out on is being able to invest a little earlier, which may work for or against them, depending upon how the investment works," he said.
Advisers in 'difficult position'
Meanwhile, research by Suffolk Life, which surveyed 151 advisers, found almost two-fifths of respondents would advise their clients to contribute no more than £4,000.
A similar number (44%) said they would only allow their clients to contribute more than £4,000 on the understanding that they may face a retrospective tax charge in the future.
Just under a fifth (17%) of advisers said they were willing to allow their clients to contribute more than £4,000 by making the assumption that the MPAA is now £10,000.
Suffolk Life pensions technical manager Jessica List said: "Advisers have been left in an incredibly difficult position: they don't want their clients to miss out on a potential window of opportunity but understandably the majority don't want to risk advising them to do something which could later incur a tax charge."
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