Money Payment Annual Allowance

Moby

I retired recently and have a DP  pension. I also have a SIPP and have already taken the 25% tax free sum. The rest of it has been placed in a drawdown account. I understand I don't trigger the money purchase annual allowance until I draw on it. Can I therefore still add to the SIPP from savings for example and get the tax relief? Is that actually illegal? Or is it not really worth bothering with because the tax is taken again as soon as I start drawing down on it? Struggling to get my head around this!

Dazed_and_C0nfused

Presume you mean DB pension not DP?

If you have sufficient pensionable earnings in the current tax year then yes you can contribute and get tax relief.

You should be able to do this and take another 25% TFLS (from the new pension pot) so only 75% will be taxable income.

Unless you start work again or become self employed you will only be able to complete contribute £2880(net)/£3,600(gross) from the 2022:23 tax year onwards.

Albermarle

Here is a very long thread on the subject . Luckily no need to read all of it .
Paying £2880 into pension when retired — MoneySavingExpert Forum

Malthusian

There is nothing illegal about it but there are a couple of limits to be mindful of:

• as has been said, for personal contributions you are restricted to your earned income in the tax year
• you need to be aware of the "tax-free cash recycling" rules. If you pay in an amount more than 30% of the tax-free cash as a last-hurrah pension contribution, you are at risk of breaching the rules.
  

jamesd

Yes, it's entirely fine to continue to make pension contributions after taking some money from one or more pensions, subject to the usual annual contribution limits and maybe the rules on tax free lump sum recycling.

Your new contributions will get tax relief added and 25% will come out tax free. If you get basic rate relief on the way in and pay basic rate income tax on the 75% on the way out you make 6.25% on the deal, risk free.

Since you've already retired and are subject to the £2,880 net or £3,600 gross limit on pension contributions you can forget about the tax free lump sum recycling rules because those are what would be expected anyway.

If this is the tax year in which you retired you can still make up to your gross pay in pension contributions, if that's above £3,600. Subject to the annual allowance of 40k plus any carry-forward of unused annual allowance from the last three tax years.

jamesd

The money purchase annual allowance limits you to no more than 4k a year down from 40k of defined contribution/personal pension contributions a year. It's triggered when you take taxable money from a flexi-access drawdown account. Before you trigger it you still have the usual 40k of annual allowance (or pay, if lower). So you could pay in enough o use your whole pay then draw taxable money to top up savings if you wanted to.

However you choose to manage things, remember that the income tax personal allowance is a use it or lose it allowance so try to get that much in taxable pension money out each year. On this you'd get basic rate tax relief or better on the way in and no tax on the way out, making a gain of all of the tax relief up to this limit, not just 6.25%.