Money Purchase Annual Allowance

[Alaric]

I noticed this in the Autumn statement.
https://www.gov.uk/government/publicati ... ement-2016

Money Purchase Annual Allowance – The Money Purchase Annual Allowance will be reduced to £4,000 from April 2017. The government does not consider that earners aged 55 and over should be able to enjoy double pension tax relief, such as relief on recycled pension savings, but does wish to offer scope for those who have needed to access their savings to subsequently rebuild them. The government will consult on the detail. (21)

Assuming the £ 4,000 is the gross amount, I would have thought it so close to the £3,600 "no questions asked" contribution available to everyone as to make little difference.

[AJC5001]

I noticed this in the Autumn statement.
https://www.gov.uk/government/publicati ... ement-2016

Money Purchase Annual Allowance – The Money Purchase Annual Allowance will be reduced to £4,000 from April 2017. The government does not consider that earners aged 55 and over should be able to enjoy double pension tax relief, such as relief on recycled pension savings, but does wish to offer scope for those who have needed to access their savings to subsequently rebuild them. The government will consult on the detail. (21)

The Consultation document, which explains the current rules, is at https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/571622/Reducing_the_money_purchase_annual_allowance_consultation_web.pdf

Assuming the £ 4,000 is the gross amount, I would have thought it so close to the £3,600 "no questions asked" contribution available to everyone as to make little difference.

Perhaps the £3,600 will be increased to £4,000?

Adrian

[Alaric]

I thought the MPAA was more to do with the £40,000 annual contribution allowance which currently reduced to £10,000 should you enter 'flexi access' drawdown?

With the small difference between £ 4,000 and £ 3,600, why not just abolish the MPAA for those in flexi access and have them rely on the contribution level that can be made with zero earnings? Perhaps the £ 3,600 would be increased to £ 4,000. It hasn't been increased for many years, if at all.

[mearnsfool]

I think it like using a sledge hammer to crack a walnut.

I recon very few people are doing the recycling and it prevents good people that are planning for their future and putting in up to £10k a year to their pot in semi retirement after taking some pension funds from their pot. They are trying not to be a burden on the state and basically inferring these people are basically up to no good.

[Alaric]

The GBP 10k contribution cap was only in effect if you had a flexible draw down plan.

Doesn't it apply if you are taking any retirement benefit? For example if you "retire" in a defined benefit scheme from a previous employer, you are restricted as to what you can contribute if you continue in some form of employment.

[mearnsfool]

No it was only if you took money from a Defined contribution scheme after i think April 2015. There was lots in the financial press about it and you were told to start a scheme before that particular date in order not to be caught by the £10k limit.

[mearnsfool]

That's because the fear here is you can take large amounts out and put it back in again and get double tax relief if you are not in capped drawdown.

If you are in capped drawdown you cannot take such big chuncks out of the pot therefore less chance of double tax relief.

But if you take large chunks out and you already have some other income you will pay tax on it therefore less to go. back in to win double taxation????

Therfore the only problem I can see the government protecting against is those fabled £1,000,000 ISA owners that can take out say £35,000 to £50,000 tax free from their isa and take out say £11,000 from their uncapped pension pot just before they pay 20% tax and reinvest it to get double tax relief but as they have no earned income to claim relief against when it goes back in that does not make sence and as soon as they get to 65 or so their state pension will hinder them from doing this.


There must be some wheeze here but I cannot make out what tit is.

[OLTB]

It might also be useful to know that you can withdraw tax free cash only from your drawdown pension (up to 25%) and as long as you don't take any further withdrawals from it (income or ad hoc lump sums), you can still pay in up to £40,000 into a pension scheme:

As a basic guide though, the main situations when you’ll trigger the MPAA are:
•If you start to take ad-hoc lump sums from your pension pot
•If you put your pension pot money into an income drawdown fund and start to take income.

And you won’t trigger it if you take:
•a tax-free cash lump sum and buy an annuity (an insurance product that gives you a guaranteed income for life)
•a tax-free cash lump sum and put your pension pot into an income drawdown product but don’t take any income from it



taken from:
http://www.moneyadviceservice.org.uk/en ... ance-(mpaa)

Cheers, OLTB

[mearnsfool]

Did a bit more research and yes you can do a little over a few years but not any large amount of dosh each year.

How many say yes that is a good deal and forget it.

A small number do it once.

Very very few can be bothered to do it again.

[Nebilon]

The wheeze they were worried about when the flexible drawdown came in was basically this: take an executive aged 55 with a salary of £120,000 and assume no pension contributions. Tax and NI are due of £46,933 leaving net pay of £73,067 (effective tax rate 39%). If the individual agrees with his employer to take a salary of £80,000 plus a contribution to a pension scheme of £40,000, the tax and NI bill on the salary goes down to £26,133, leaving net pay taken as salary of £53,869. The individual can also take £40,000 back out of the pension scheme as an UFPLS, of which 25% is tax free and the rest taxed mostly at at 40% (no NI), so a net payment of £27,000. So the same £120,000 paid out by the employer becomes worth £80,869 in the hands of the employee (effective tax rate 32%), and the employer has saved about £5,520 in NI as well. The government (ie you and me!) is out nearly £14k on this one person alone. And the wheeze could be repeated to retirement.

It was probably necessary to do something to prevent structures like this, but I agree the cut to £4000 makes no sense.

[mearnsfool]

Nebilon.

The second round of your example was not allowed already as it would have hit the MPAA trigger of £10,000. This would reduce the prize considerably in the future.

http://www.pruadviser.co.uk/content/kno ... ns_ufpls/#