Possibly messed up... (MPAA)

timm_2

Hi.
I'm 57 and recently took a partial lump sum from a small private pension pot. The pot (from memory) was worth around £14k so I couldn't use the small pot scheme. I took circa £8k from it.
I didn't read the small print properly and only realised after the event that I'm now subject to the reduced MPAA tax free contribution limit of £4000. Although I'm not currently contributing to a pension fund I almost certainly will do before too long.

I'm guessing there is no loophole here and I'm stuck with this but I'd appreciate any advice if there is another option. Thank you!

Mnd

I think you may be alright AS LONG as you didn't take any income as well..

That's how I understand it,but I'm not an expert so check with your provider.

I expect some experts on here will either confirm this or put us both straight.

You still are allowed to contribute to a pension regardless, there are just limitation how much

Mnd

Sorry, reading your original post, it seems you did take more than the 25% TFLS, so I'm probably incorrect what I said.

I think that you can take the taxfree bit but no taxable money, is that correct

Malthusian

How recently? If it's a matter of days it may be worth asking if you can change your mind and return the payment. If taking the payment involved a transfer to a drawdown policy you may have cancellation rights. (I don't know if it's legally possible or the scheme will permit it, but it doesn't hurt to ask.)

If not, then I am afraid you are stuck. The alternatives that immediately spring to mind are:

- save via a stocks & shares ISA or unwrapped investments

- apply for jobs in the Civil Service, the local council or another employer with a defined benefit scheme. Contributions to defined benefit pensions aren't affected by the MPAA. (The MP is for "Money Purchase".)

EdSwippet

The MPAA is one of the more appalling pension tax traps. Reducing it retroactively, as the government did in the last finance bill, is unworthy of a country that calls itself civilised.

I have had a long discussion with my MP over the unfairness of this. Predictably, neither he nor anyone at Treasury can really be bothered to address it, perhaps not even try to understand it, because -- of course -- it doesn't apply to civil servants, MPs, and anyone else on final salary pensions. This is nothing other than pension apartheid.

Shameful and disgraceful behaviour on the part of the government.

OP, you have my sympathies. It looks like you may be stuck.

dunstonh

The MPAA is one of the more appalling pension tax traps. Reducing it retroactively, as the government did in the last finance bill, is unworthy of a country that calls itself civilised.

Retrospective changes were virtually unheard of before Gordon Brown.

However, the Govt can probably get away with this one on a technicality as it's not a retrospective change but a change in the annual allowance going forward.

Its certainly messy and you would have to think there were better ways of doing it. A complete restart and decide once and for all whether you want a lifetime allowance (which is a tax on saving) or a contribution allowance (which doesn't penalise growth). Not a fudge of both with additional restrictions based on scenarios.

EdSwippet

dunstonh wrote: »

However, the Govt can probably get away with this one on a technicality as it's not a retrospective change but a change in the annual allowance going forward.

It is indeed a reduction of an allowance going forward. However, the reduction was not passed into law until Sept 2017, but it was then made effective from April 2017. That's the retrospective part.

The government did state pretty loudly that they intended this back in March, but had they lost the election it might not have materialised. If there is one thing even worse than bad tax law, it is uncertain tax law.

According to the government, the reduction apparently affects very few people, in which case waiting a year would have 'cost' them next to nothing. Yet they went ahead anyway. It is pure governmental arrogance, with a side-order of hypocrisy.

timm_2

Thanks everyone.
I did suspect that (due to carelessness) I'd fallen into a trap but it was worth an ask. I think I speed read this particular section of the advice leaflet, confusing it with the lifetime allowance. I'm more annoyed with myself to be honest as I'm usually a real stickler for checking terms, conditions and contracts etc. There's a possibility I may have still made the decision to draw down the lump sum anyway but it's not stopping me from beating myself up!

Malthusian

EdSwippet wrote: »

The government did state pretty loudly that they intended this back in March, but had they lost the election it might not have materialised. If there is one thing even worse than bad tax law, it is uncertain tax law.

Did anyone seriously think that a) Labour would win the general election b) having done so they would have taken a more generous attitude towards pension tax relief and not done exactly what the Tories have proposed? Why not just wait until later in the tax year?

There was no uncertainty in this case, it was made very clear that the allowance would be reduced to £4,000 in this tax year.

michaels

Malthusian wrote: »

Did anyone seriously think that a) Labour would win the general election b) having done so they would have taken a more generous attitude towards pension tax relief and not done exactly what the Tories have proposed? Why not just wait until later in the tax year?

There was no uncertainty in this case, it was made very clear that the allowance would be reduced to £4,000 in this tax year.

What happens if you previously took a drawdown under the understanding that you would be capped to 10k pa going forward and then later had that cap reduced to 4K?

Malthusian

michaels wrote: »

What happens if you previously took a drawdown under the understanding that you would be capped to 10k pa going forward and then later had that cap reduced to 4K?

Annoying, but not retrospective.

The £10k limit was always an anomaly - for someone who took pre-2015 flexible drawdown the annual allowance was zero. Post-2015 flexi-access drawdown holders were only given the MPAA to avoid messing up auto-enrolment. I always thought it was likely to be reduced to something closer to either £0 or the £3,600 limit for pension tax relief for non-earners. But this isn't about my genius political Mystic Moggery, this is about whether the change from £10,000 to £4,000 was retrospective.

In November 2016 it was announced that the MPAA would be reduced to £4,000 "subject to consultation". In March 2017 the consultation concluded and it was announced that the MPAA would be reduced to £4,000. This was well before 2017/18 began. It was not retrospective.

If you were expecting to be able to draw £10k out of a flexi-access drawdown pension every year and pay it back into a pension and get another free £2,500 tax free cash every year, and now find you can't, that's not retrospective, that's just tough.