Retain £40k contribution facility

nrsql

Considering employers contributions to a pension.

Am I right in thinking that if you want to keep the £40k allowance and be able to take tax free amounts in future that you need to get a pension pot into capped drawdown before the end of the year - you can then add to it.

If so it might be important to do this even for a nominal amount in case you want to use it in the future.

TH1878

nrsql wrote: »

Considering employers contributions to a pension.

Am I right in thinking that if you want to keep the £40k allowance and be able to take tax free amounts in future that you need to get a pension pot into capped drawdown before the end of the year - you can then add to it.

If so it might be important to do this even for a nominal amount in case you want to use it in the future.

Didn't we do this yesterday?

For those people who will only draw TFC, such as yourself, you won't be caught by the MPAA as it only applies when you take taxable income from the plan.

However, if you plan on taking income (and for some reason want to continue paying £40k pa) but your income requirement will be below the GAD limit, then you could set up a capped drawdown plan before April (for £1k for example) and add to it at a later date without losing the £40k AA.

We have done this with a number of clients who MAY want to use it - they haven't lost anything if they don't.

nrsql

Isn't it the case that after this tax year if you don't have a capped drawdown in place then if you make a contribution and take a TFLS then you are limited to £10k per annum thereafter whether or not you take income?

That's what my FA seems to be saying - and also that my existing drawdown set up in 2011 was under different rules and can't be used.

TH1878

nrsql wrote: »

Isn't it the case that after this tax year if you don't have a capped drawdown in place then if you make a contribution and take a TFLS then you are limited to £10k per annum thereafter whether or not you take income?

Nope, not if you only take the tax free cash. A designation of funds for flexi-access drawdown does not in itself trigger the MPAA but taking income does.

http://www.pruadviser.co.uk/content/knowledge/oracle_archive/oracle-technical/oracle-tech-september-14/money-purchase-annual-allowance/

Not all methods of accessing pension benefits will trigger the new rules. As mentioned above, those clients in capped drawdown may continue to draw an income up to their cap without triggering the MPAA rules. It is intended that where additional funds are designated to an existing capped drawdown arrangement then those funds will also benefit from the current rules and any income drawn will not trigger the MPAA rules either.
Where a tax-free lump sum is desired and can be taken as a pension-commencement lump sum this may be paid without triggering the MPAA rules. The related amount can be crystallised into flexi-access drawdown without affecting the annual allowance rules until income is taken. Once income has been taken then the new MPAA rules will apply. However, being in receipt of dependants' flexi-access drawdown does not trigger the MPAA.

That's what my FA seems to be saying - and also that my existing drawdown set up in 2011 was under different rules and can't be used.

Who is your current drawdown plan with? Seems unusual.

nrsql

Pretty sure it is L&G.

TH1878

nrsql wrote: »

Pretty sure it is L&G.

Not too familiar with that contract but I'd be surprised if you couldn't designate further funds or it.

nrsql

I checked what my FA emailed

"
The monies would need to be invested and then placed into 'capped drawdown' before April 5th (if you still wish to retain the annual allowance of £40k for future tax years)

If you weren't planning to contribute more than £10k in future tax years, then you would not have to rush to use 'capped' drawdown before April
"

Sounds like he thinks the capped drawdown needs to be set up this tax year.

"
We cannot top up the existing L&G drawdown plan as it is not strictly compliant with post-January 2013 legislation (the 'Retail Distribution Review')
"

Wonder if that is due to the charging structure.

TH1878

nrsql wrote: »

I checked what my FA emailed

"
The monies would need to be invested and then placed into 'capped drawdown' before April 5th (if you still wish to retain the annual allowance of £40k for future tax years)

If you weren't planning to contribute more than £10k in future tax years, then you would not have to rush to use 'capped' drawdown before April
"

Sounds like he thinks the capped drawdown needs to be set up this tax year.

"
We cannot top up the existing L&G drawdown plan as it is not strictly compliant with post-January 2013 legislation (the 'Retail Distribution Review')
"

Wonder if that is due to the charging structure.

Ok, he took commission rather than fees on the original business. As commission is now banned, you can't increment the plan.

If you are only ever going to take TFC then it doesn't matter whether you do it through FAD or capped drawdown as long as you don't take any income. You will retain your £40k AA

nrsql

I seem to remember paying a hefty fee for they transaction at the time.

You're saying he's wrong about the £10k limit if I don't get it done before 5 April.

jamesd

So long as you don't take out more than 25% of tax free lump sum your annual contribution allowance will remain at £40k. The differences only matter if you want to do more than that:

1. Capped, must be started before 6 April 2015 but new money can be added to existing plans (usually!): can take out up to the GAD limit amount each year without triggering the drop. The new money would normally go into a different "arrangement" that has not been crystallised yet, while the capped money would be in a different arrangement. No problem, it can just be merged in when you take benefits from the new money.
2. Fexi-access: can only be started from 60 April 2015: take out more than the tax free lump sum and the allowance drops.
3. Uncrystalised funds pension lump sum (UFPLS): can only be done from 6 April 2015 and always causes the allowance to drop.

You could transfer the plan that is currently in capped drawdown to one that isn't paying commission if you want to add to it. I suppose it's also possible that there's some other reason than commission why it can't be used. The adviser doesn't need to be involved in this if you don't want to pay them for a service that you don't need.

If you do want the capped drawdown flexibility be certain that you get one with the desired flexibility in place no later than 5 April, even if that involves paying £1,000 into a new pension pot and putting that into capped drawdown.

One other thing to be aware of is that once you have crystallised/taken benefits from a pension you cannot then combine it with other pots that have been crystallised. So if you do need a new product, get moving on that transfer so you don't end up with two pots, unless you want two.