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Final salary pension and MPAA

smokey01
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Final salary pension and MPAA

#247510

Postby smokey01 » August 28th, 2019, 2:11 pm

Hi,

I am able to access a final salary pension in January of next year. I am a deferred member and the scheme is now closed.

My question is once I am in payment of this pension am I then restricted to only being able to pay £4000 into my money purchase pension or
will I still have the full £40,000 allowance?

TedSwippet
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Re: Final salary pension and MPAA

#247517

Postby TedSwippet » August 28th, 2019, 2:38 pm

smokey01 wrote:My question is once I am in payment of this pension am I then restricted to only being able to pay £4000 into my money purchase pension or will I still have the full £40,000 allowance?

https://www.moneyadviceservice.org.uk/e ... -allowance
The MPAA only applies to contributions to defined contribution pensions and not defined benefit pension schemes.

ursaminortaur
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Re: Final salary pension and MPAA

#247576

Postby ursaminortaur » August 28th, 2019, 7:20 pm

TedSwippet wrote:
smokey01 wrote:My question is once I am in payment of this pension am I then restricted to only being able to pay £4000 into my money purchase pension or will I still have the full £40,000 allowance?

https://www.moneyadviceservice.org.uk/e ... -allowance
The MPAA only applies to contributions to defined contribution pensions and not defined benefit pension schemes.


And to be clear the MPAA is not triggered by taking a DB pension.

https://www.pru.co.uk/pdf/GENM282401.pdf

The MPAA will not affect you if you have taken final salary or career average benefits only, nor will it affect you if you have a non-flexible Annuity. It also does not apply to any final salary or career average benefits that you may build up in the future

BrummieDave
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Re: Final salary pension and MPAA

#247770

Postby BrummieDave » August 29th, 2019, 12:30 pm

The only thing that triggers the 'Money Purchase Annual Allowance' (MPAA) of £4,000 is if you access a Defined Contribution pension and then, only if you do so flexibly (either via an uncrystallised lump sum, or income drawdown). Taking up to 25% of a DC pot as a tax free lump sum doesn't trigger it either.

And nothing you do with a DB Pension can ever ever trigger it. Never ever ever ever.

So you can access a DB pension (or several DB pensions), including taking up to £25% tax free (subject to scheme rules and your Lifetime Allowance etc.), and thus benefit from monthly pension income, and still contribute to a DC pension and gain tax relief on contributions up to the current annual limit of £40,000.

You can of course contribute more than £40,000, assuming you earn sufficient in any tax year to do so, you just don't get tax relief. The 'limit' which many people think means no more than £40,000 can be contributed, is just for getting tax relief. Any contributions you make over this tax relief limit won’t attract tax relief and will be added to your other income and be subject to Income Tax at the rate that applies to you, and you can carry forward unused allowances from the previous three years, as long as you were a member of a pension scheme during those years.

But to answer the OP question, do whatever you wish with any number of DB pensions, and it cannot ever trigger the MPAA of £4,000.

smokey01
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Re: Final salary pension and MPAA

#247885

Postby smokey01 » August 29th, 2019, 6:27 pm

Excellent thank you all for your replies.

I will be accessing the pension (if I decide to do so) early with a 2.5% deduction for each year that is before normal retirement date.

As an example if at normal retirement date my annual pension would be £25,000. I presume I have calculated the early pension correctly:-

Pension if taken 1 year early £24,375.00
Pension if taken 2 years early £23,765.63
Pension if taken 3 years early £23,171.48
Pension if taken 4 years early £22,592.20
Pension if taken 5 years early £22,027.39

As far as the Lifetime Allowance goes I presume if taking the pension 5 years early I would multiple £22,027.39 by 20 and not £25,000 by 20?

Do I need to re-evaluate the lifetime allowance due to any yearly inflation increase in the pension?

DrBunsenHoneydew
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Re: Final salary pension and MPAA

#247895

Postby DrBunsenHoneydew » August 29th, 2019, 7:09 pm

smokey01 wrote:...

As far as the Lifetime Allowance goes I presume if taking the pension 5 years early I would multiple £22,027.39 by 20 and not £25,000 by 20?

Do I need to re-evaluate the lifetime allowance due to any yearly inflation increase in the pension?

Yes the amount of LTA used up is calculated on the actual pension at the moment of starting to take it.
For a DB scheme that's it, but for a DC scheme there would be a reassessment at age 75 or prior death.


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