Small Pots and MPAA

mark55man

Hello

My OH has a smal DC pension pot of just under £5k that is about 30 years old, from small acorns do mighty (!!!) oaks grow.

She is now 55 and moving into a phased retirement I just wanted to check my research

1. She can take this small pot as a single lump sum of which 25% will be tax free and 75% will be taxable
2. Taking a small pot does not trigger MPAA - ie her Annual allowance will remain at £40K and not £4K
3. As she will be earning around £7K next year (about half of this year) - it would be sensible to defer to April to do this so the taxable 75% will be under her personal allowance

I am reluctant to lose the MPAA as I am trying to rebalance pensions between her and myself and therefore we will be looking to make additional contributions in future years up to her net annual taxable income to benefit from the current 25% contribution. From point 3 above this is likely to be more than £4K.

I undrestand an alternative would be to transfer it into another DC pot, but we have plans to improve the house to make it slightly easier to live in which this money would accelerate.

xylophone

https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/money-purchase-annual-allowance-mpaa/

Small Pots or defined benefits triviality payment
The small pots rules were amended following the Budget to allow three pots of up to £10,000 to be withdrawn from non-occupational DC pension funds, for occupational DC pension pots there is no limit on the number of small pots that can be taken. This is paid 25% tax free and 75% subject to marginal rate income tax in the same way as an UFPLS. However, a small pots payment does not trigger the MPAA.

mark55man

Thank you xylophone that's much clearer than the things I could find. \


(Sorry for delay in responding been on the road for a lot longer than necessary)