Contributions > £4k & triggering MPAA via UFPLS in same financial year query.

pensionpawn

So you're heading into the last lap or two before retirement and chucking as much as you can into your pension, making hay whilst the sun is shining. You get to December and work is becoming hell so you decide that you have enough in your pot and decide to pull the rip cord before the stress ruins Christmas. However you've already contributed more than the MPAA allowance for the current financial year so does than mean:
1. You can't take any UFPLS in the present financial year (you will have to take some TFLS or use savings for 3 to 4 months)
2. The £4k limit is only applicable after the MPAA event and you will not be penalised for contributions above £4k between April - November? You can still contribute £4k from December - March, or it's appropriate proportion, £1k?
3. Something else?

It's a possibility.....

Novice_investor101

MPAA applies from the date it is triggered, so the date you take the UFPLS. You can still pay in the £4k after that date as long as the £4k plus your previous contributions in the tax year don’t take you over the annual allowance or your earnings, whichever is lower. 

pensionpawn

Novice_investor101 said:

MPAA applies from the date it is triggered, so the date you take the UFPLS. You can still pay in the £4k after that date as long as the £4k plus your previous contributions in the tax year don’t take you over the annual allowance or your earnings, whichever is lower. 

Thanks for your reply. So, if I understand, someone who has contributed more than £4k into their pension on starting UFPLS in December would not be able to contribute again until the new tax year, and anyone with contributions less than £4k can top up to £4k in the current tax year. In former situation no tax penalty occurs?

MK62

pensionpawn said:

Novice_investor101 said:

MPAA applies from the date it is triggered, so the date you take the UFPLS. You can still pay in the £4k after that date as long as the £4k plus your previous contributions in the tax year don’t take you over the annual allowance or your earnings, whichever is lower. 

Thanks for your reply. So, if I understand, someone who has contributed more than £4k into their pension on starting UFPLS in December would not be able to contribute again until the new tax year, and anyone with contributions less than £4k can top up to £4k in the current tax year. In former situation no tax penalty occurs?

Not quite, (at least AIUI).....

There is a decent explanation here    https://www.aegon.co.uk/support/faq/pension-technical/MPAA.html

Look at the section "How does the MPAA apply in practice"

pensionpawn

MK62 said:

pensionpawn said:

Novice_investor101 said:

MPAA applies from the date it is triggered, so the date you take the UFPLS. You can still pay in the £4k after that date as long as the £4k plus your previous contributions in the tax year don’t take you over the annual allowance or your earnings, whichever is lower. 

Thanks for your reply. So, if I understand, someone who has contributed more than £4k into their pension on starting UFPLS in December would not be able to contribute again until the new tax year, and anyone with contributions less than £4k can top up to £4k in the current tax year. In former situation no tax penalty occurs?

Not quite, (at least AIUI).....

There is a decent explanation here    https://www.aegon.co.uk/support/faq/pension-technical/MPAA.html

Look at the section "How does the MPAA apply in practice"

Thanks for the link. So pre & post UFPLS trigger must not exceed the usual £40k (or annual pay for that tax year) and post UFPLS must not exceed £4k. That isn't going to be a problem in our case.

jamesd

Right.

You can use all of the usual contribution rules including annual allowance carry-forward until the day you trigger the MPAA. From that day you're limited to the lower of 4k more or whatever allowance you still have left. And of course subject to the income limit.

You might be able to dodge triggering the MPAA anyway. These things get money out of a pension without triggering it:

1. taking the 25% tax free lump sum from all or part of a DC pot, with the 75% going into a flexi-access drawdown account until you are ready to trigger
2. using the small pot rule to take all of a pot worth up to 10k. Up to three times in your life, must be the whole pot, you can move money around to create the pot. 25% tax free, 75% taxable.

pensionpawn

jamesd said:

Right.

You can use all of the usual contribution rules including annual allowance carry-forward until the day you trigger the MPAA. From that day you're limited to the lower of 4k more or whatever allowance you still have left. And of course subject to the income limit.

You might be able to dodge triggering the MPAA anyway. These things get money out of a pension without triggering it:

1. taking the 25% tax free lump sum from all or part of a DC pot, with the 75% going into a flexi-access drawdown account until you are ready to trigger
2. using the small pot rule to take all of a pot worth up to 10k. Up to three times in your life, must be the whole pot, you can move money around to create the pot. 25% tax free, 75% taxable.

So lets say that someone earns £24k pa. They contribute 10% each month (£200) via SS, their employer also throws in 10%. Come November they think to themselves that they've had enough and decide to retire (quit employment) before Christmas. Including their November pay they've earned £16k (actually £14k4 plus £1k6 employer contribution). So, here's my main query. Before deciding to take UFPLS from January (and hence triggering MPAA) they are able to:
1: Contribute (up to) another £14k4 into their pot, taking their total contributions up to 100% of salary at the point of end of employment?
2: Also contribute £3k6 from January (as they are no longer employed) before the end of the financial year, or would this not be allowed due to contributing 100% of salary prior to ending their employment?

By referencing £4k in my original question I made a mistake as that implied continuing to work (which could be valid for some and still a useful question) however I meant to state £3k6 as in our situation the person will be ending their employment.

I hope that helps clarify what I'm trying to understand. Thanks all.

jamesd

You can't use gross contributions in excess of gross salary. Yes to 1.

If you were still working the pay rule is on an annual basis so you could contribute before triggering the MPAA based on salary you get paid after triggering the MPAA.

pensionpawn

jamesd said:

You can't use gross contributions in excess of gross salary. Yes to 1.

If you were still working the pay rule is on an annual basis so you could contribute before triggering the MPAA based on salary you get paid after triggering the MPAA.

So the first point, the uplift of contributions to 100% of salary (at date of employment termination) is ok just prior to triggering MPAA via the first UFPLS withdrawal. However just to clarify the second point, no further contributions are allowed in that tax year or only £2880 (which I had meant to type)? Apologies for pushing this however I need to be absolutely sure so as to avoid the risk of a nasty tax demand. Thanks for persisting with me everyone 

jamesd

Once you've made gross contributions equal to your gross pay that's all you're allowed with tax relief. You don't get 2880 net in addition, that's a minimum for people with less than 3600 gross pay in the tax year. Next tax year you can do the 2880.

pensionpawn

jamesd said:

Once you've made gross contributions equal to your gross pay that's all you're allowed with tax relief. You don't get 2880 net in addition, that's a minimum for people with less than 3600 gross pay in the tax year. Next tax year you can do the 2880.

Thanks. Every day's a school day!