MPAA question

Bunker

I have a SIPP. can I still take a tax free lump sum at age 55, but continue to pay in for another 5 years and then take another TFLS of the additional funds I pay in? Or will my additional contributions be restricted in any way once I take a TFLS from the SIPP?

Malthusian

Taking a tax free lump sum from a pension fund does not trigger the MPAA, no matter how many times you do it, so your first sentence is correct. If you drew income from the other 75% of the SIPP (the taxable part) the MPAA would apply.

Bunker

Thanks. How is the remaining 75% calculated/'ring fenced' from additional contributions, dividend payments etc. etc

I assume dividends/growth on the remaining 75% is taxable when it is withdrawn?

Malthusian

It depends on the SIPP. Say you have a £100,000 SIPP, you draw 25% tax free cash and then contribute £25,000 gross. You will now have £75,000 of "crystallised" funds ("crystallised" means benefits and tax free cash have been drawn) and £25,000 of "uncrystallised" funds.

Some pension providers will completely separate those two pots so you'll easily be able to see which is your uncrystallised pot and which is the crystallised. You could if you wished invest each pot in different funds. Others (particularly with SIPPs) will lump them in together, and when you come to draw tax free cash again you'll have to get them to calculate how much each bit has grown by.

Dividends and growth within pension funds are tax free. Income tax is paid when you make a withdrawal from the 75% taxable part.