The Treasury has confirmed its plans to reduce the Money Purchase Annual Allowance from £10,000 - £4,000. It will take effect in just 16 days, from 6 April.

Officials defended the move, saying it is “fair and reasonable, and will only affect up to 3% of individuals over age 55”. But Old Mutual Wealth disputed the figures, using a Freedom of Information request to show they were merely a “best guess estimate”.

Although MPAA was initially set at £10,000 in order “to deliver a smooth introduction of the pension flexibilities”, the Government believes this is inappropriate on “an ongoing basis”.

The Treasury stated: “It allows people who need to access their pension savings to rebuild them if they subsequently have opportunity to do so, while limiting the extent to which pension savings can be recycled to take advantage of tax relief, which is not within the spirit of the pension tax system.”

The government said it did not receive evidence that the cut would impact on the successful roll out of automatic enrolment or would hit different groups disproportionately.

Ian Browne, retirement planning expert at Old Mutual Wealth, said the Government had “held on to a proposal that is at odds with the current trends developing in the retirement market and the spirit of pension freedoms”

He said: “The government’s response to the consultation on the MPAA reduction acknowledges all the issues with the policy. However, they have determined to forge full steam ahead leaving us with another example of a policy that needed more time for careful thought.

“There are other ways to minimise recycling and the government also acknowledged this in their response. However, they said to abandon the MPAA now and consider a new approach would require too many new processes and its simpler to just keep the MPAA. It seems they’ve decided to go down an easier route, even if it’s not the right one, instead of taking time to properly consider alternative routes.”

Gareth James, head of technical resources at AJ Bell, said: “The chances of the Government performing another policy u-turn were always slim but it is still disappointing that the MPAA cut is going ahead.

“It flies in the face of the pension freedoms, where people are being encouraged to use their savings flexibly and yet when they do so they are punished with a drop in their annual allowance from £40,000 to £4,000.

“The change is now just 17 days away so companies are going to have to think quickly about how they communicate with hundreds of thousands of customers who have been told they have a MPAA of £10,000.

“Some of these people are going to have to quickly rethink their pension planning for next year.”

Immediately after the Budget, Financial Planners said they were unhappy that the policy was moving ahead.

Chartered Financial Planner Nicola Watts APFS Chartered FCSI, director of Jane Smith Financial Planning in Olney, said: “My one hope for the Budget was that this proposal would be scrapped or at least further time given towards consultation on the potential impact of the reduction.”

Read more on what Financial Planners think here.