The Money Purchase Annual Allowance is dropping to £4,000 - How does it affect you?
If you have cashed in a Defined Contribution pension pot of more than £10,000 in size or drawn down on even £1 of taxable income from your pension you may have triggered the Money Purchase Annual Allowance (MPAA). The MPAA was introduced on 6th April 2015 and was set at £10,000 gross p.a. which is the amount you or your employer are allowed to pay into a money purchase, also known as defined contribution pension. The government has now reduced the MPAA to £4,000 gross p.a. which applies to contributions made from the 6th April 2017.
There has been some confusion about who this does and does not affect. If you are getting a taxable income from a lifetime annuity or from a pension scheme then that alone does not trigger the MPAA. If you cashed in a small pot or received a lump sum in lieu of a trivial (very small) pension, this does not trigger the MPAA either. The trigger is where you have accessed your money flexibly; this could be from a Flexi Access Drawdown, an Uncrystallised Funds Pension Lump Sum (UFPLS), a Flexible Annuity or usually through cashing in a DC pot larger than £10,000.
There has also been confusion about whether you will be able to carry on with your workplace scheme or not. The answer is normally yes. If your workplace scheme is a defined benefits scheme (Final Salary or Career Average) then usually your contributions and your employer’s contributions can carry on as normal. If you have been automatically enrolled into a workplace pension scheme then your contributions and those of your employer will usually be below £4,000 p.a. so you can continue in that scheme. If you are in a defined contribution scheme, your contributions are limited to £4,000 p.a.
You cannot carry forward with the MPAA so if you wish to maximise your pension contributions and you have already triggered it, then the 5th April is the last day to contribute up to the current £10,000 gross p.a. limit.
We have more information on the MPAA and the annual allowance generally here. Alternatively, you can contact us on 0300 123 1047 if you'd like to talk about you and your pension.