MPAA and works pension implications

Underfunded-overworked

Hi , would be grateful for advice on this matter , last year I rearranged a few pension matters i.e. transferred out of a small D.B. pension , put three D.C. pensions into one P.P. including the stopping of my works pension , transferring out and then restarting immediately , I took the tax free portions and also a taxable amount up to the the higher rate tax allowance , now at the time of starting all this , Sep. 2016 the M.P.A.A. was 10k and as my works pension total contributions are only around 7k this seemed a great option ... however it then came in at 4k , so I am where I am but the question is as my total contributions are 7k is it just a simple matter of owing the taxman circa £600 on the excess , the pot then is then as a normal pot i.e. when required I get 25% tax free and the rest within tax bands applicable , or is it more complicated than that , thanks for any comments or advice

xylophone

https://www.aegon.co.uk/support/faq/pension-technical/MPAA.html

jamesd

If the works pension is defined benefit there's no effect. If defined contribution it's subject to the MPAA. Either way, the law requires you to notify them that you're subject to the MPAA.

You'll need to enter self-assessment and complete a tax return to get the charge applied. The 3000 excess will be added to your taxable income and produce a charge of 600 if it's all at basic rate.

Employer contributions and salary sacrifice can make this worthwhile.

Underfunded-overworked

Hi , thanks for the replies , the pension is D.C. and contributions are 7% me 13.5% them , I informed Standard Life at the time as the paper work received indicated , they have just contacted me to check their figures as they will now be sending them to H.M.R.C. , so was just wanting to be sure that it was still worth contributing at 7k or to drop down joint payments of 4k , so if the only implication is the £600 extra tax and the pot still remains as normal I guess it would , under the circumstances , be best to carry on as is , do you agree ?

Dox

Underfunded-overworked wrote: »

I guess it would , under the circumstances , be best to carry on as is , do you agree ?

That's entirely your call - but while you are 'making' on employer contributions v lack of tax relief on total contributions over £4K, it makes good sense. Once in your pension, the funds grow in a tax favoured environment - another reason to think it's worthwhile.

jamesd

Underfunded-overworked wrote: »

I guess it would , under the circumstances , be best to carry on as is , do you agree ?

Yes. That employer money is worth having.

Underfunded-overworked

So , final point , is it best to get scheme to pay or me through tax code , its all at basic rate , many thanks

jamesd

Scheme pays seems likely to be best. Keeps more of your money outside the pension and available initially for ISA or maybe to run through the pension later, either repeating what you did this time or maybe within the allowance in the future, low though the MPAA is.

If you've so much available money that you have no ISA allowance and no prospect of future pension contributions then having the money in the pension might look better but in that case I'd be wondering about VCTs instead.

Having the money in the pension might also be best if you're trying to reduce inheritance tax potential.

kidmugsy

Underfunded-overworked wrote: »

Sep. 2016 the M.P.A.A. was 10k and as my works pension total contributions are only around 7k this seemed a great option ... however it then came in at 4k , so I am where I am but ...

Lord, I hate it when governments introduce retrospective legislation. Why didn't the so-and-sos apply the new limit only to people starting drawdown after the Budget concerned?

It's particularly bonkers from a Coalition government or Conservative government who should surely want to be able to say that retrospective/retroactive legislation is the sort of unjust thing that only a socialist government would do.

Underfunded-overworked

As usual great advice freely given , many thanks