Money Purchase Annual Allowance - £40K

Hal17

Can I please ask for some advice? I have a DC pension that was started pre-2015 and has a GAD Cap which I have not exceed. So I am unable to still contribute up to £40K a year if my income allows. I am thinking of opening a new SIPP with Vanguard and will take no income from it until some years ahead. Will opening a new SIPP affect the Money Purchase Annual Allowance of my other DC pension. I have read that it will be okay, but just need to check if I am reading it correctly? Many thanks.


 

wjr4

It only applies if you take a taxable income from your pension using flexi access drawdown 

xylophone

https://www.moneyadviceservice.org.uk/en/articles/capped-drawdown

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

Hal17

Thank you both very much for the prompt reply and assistance.

Albermarle

The title says MPAA - £40 K 
Maybe some confusion here .
£40K is the Annual Allowance for contribution to pensions
The Money Purchase Annual Allowance of £4K , only applies after you have taken out taxable income from a DC pot .

Hal17

I am sorry to open this thread again, but if I am honest I am still confused.
If I put £40K into a new Vanguard SIPP, could I take the £8K tax free without it triggering the reduced MPAA allowance. I have read the following statement "Where a member accesses their pension fund via an UFPLS this is regarded as a trigger event and the MPAA rules will apply".
So although the Vanguard withdrawal would be taken tax free as untaxed income the information I have read on UFPLS stuff states that any withdrawal will trigger the MPAA. The comments kindly posted above talk about taxed income but I do not want to do anything silly that will make me lose the MPAA allowance of £40K at this time. Thanks again.

Albermarle

You can access tax free cash in more than one way .
If you just request to take tax free cash and nothing else then MPAA will not apply . The remaining £32K would be then  crystallised funds and if you took any money from that it woyud be taxable and trigger the MPAA  . If you leave it in the pension then no MPAA will be triggered.
A UFPLS payment is a different way , where you take a payment that is 25% tax free and 75% taxable and this does trigger the MPAA. This type of payment can be useful in certain situations and where MPAA is not an issue ( retired for example) 

Notepad_Phil

Taking the money out via UFPLS will result in it triggering MPAA as you are taking 25% of the money tax-free and the other 75% is taxable. Taking any taxable money result in the MPAA being triggered.

You would want to take the money out via what this page https://www.vanguardinvestor.co.uk/investing-explained/using-your-pension-money calls 'flexible income (drawdown)' where you are allowed to take 25% out tax-free and leave the rest in the drawdown i.e. you are not taking any taxable money out.

Marcon

Hal17 said:

I am sorry to open this thread again, but if I am honest I am still confused.
If I put £40K into a new Vanguard SIPP, could I take the £8K tax free without it triggering the reduced MPAA allowance. I have read the following statement "Where a member accesses their pension fund via an UFPLS this is regarded as a trigger event and the MPAA rules will apply".
So although the Vanguard withdrawal would be taken tax free as untaxed income the information I have read on UFPLS stuff states that any withdrawal will trigger the MPAA. The comments kindly posted above talk about taxed income but I do not want to do anything silly that will make me lose the MPAA allowance of £40K at this time. Thanks again.

The Annual Allowance is £40K. The MPAA is £4K once triggered. 

If you only take the tax free 25% from a DC pension, the MPAA is not triggered; nor is it triggered if you take 25% cash and use the remaining 75% to buy an annuity. If you have a 'small pot' (overall value no more than £10,000) and take the lot as cash in one go, specifying you are doing so using the 'small pot' regime, then you won't trigger the MPAA - and you can take up to 3 different personal pension 'small pots' provided each individual pot does not exceed £10,000.

If, however, you take 25% tax free cash from any size of DC pot, and then take even a penny more (i.e. you 'flexibly access your fund), that will trigger the MPAA. 

Hal17 said:

I have read the following statement "Where a member accesses their pension fund via an UFPLS this is regarded as a trigger event and the MPAA rules will apply".

This might help clarify what you've read: https://thepeoplespension.co.uk/help/knowledgebase/differences-flexi-access-drawdown-ufpls/

Hal17

Wow thank you all for the instant replies and the information provided. That is greatly appreciated and I am no longer confused.  I can open a new SIPP with Vanguard in the new tax year and use just the tax free withdrawal if required in the future or until the £40K MPAA amount is no longer required. Perfect thank you again.

jamesd

And of course you can continue to take taxable money up to the GAD limit from your existing capped drawdown pension because that isn't flexible access and doesn't trigger the MPAA.