MPAA

sevenhills

‘money purchase annual allowance’ (MPAA) which stops people who have accessed their pension from contributing more than £4,000

In 2017 I cashed in a £40k Prudemtial person pension in order to give myself a deposit to buy a house. It has only just crossed my mind this might limit me to contributing £4k per year into my SIPP. Is this the case?

I also contribute to a local authority pension. Is that included in the £4k limit?

I have had a SIPP since 2019, I probably did pay in more than £4k in 2020, my SIPPs value is now £13k

cloud_dog

Assuming the Prudential £40k was a DC scheme (likely) then it would appear you have taken some of the taxable component and therefore the MPAA will be in effect for you for DC contributions.  DB contributions are excluded from the rule.

sevenhills

cloud_dog said:

Assuming the Prudential £40k was a DC scheme (likely) then it would appear you have taken some of the taxable component and therefore the MPAA will be in effect for you for DC contributions.  DB contributions are excluded from the rule.

It was a private pension from years ago. I took it out at the time when I was advised to opt-out of SERPs.

It was a positive move. I am not a big earner, so keeping contributions to £4k won't be a problem, now I know about it.

Am I likely to get a letter from HMRC if I have gone over £4k?

Marcon

sevenhills said:

cloud_dog said:

Assuming the Prudential £40k was a DC scheme (likely) then it would appear you have taken some of the taxable component and therefore the MPAA will be in effect for you for DC contributions.  DB contributions are excluded from the rule.

It was a private pension from years ago. I took it out at the time when I was advised to opt-out of SERPs.

It was a positive move. I am not a big earner, so keeping contributions to £4k won't be a problem, now I know about it.

Am I likely to get a letter from HMRC if I have gone over £4k?

The ball's in your court to check: https://www.gov.uk/guidance/work-out-your-allowances-if-youve-flexibly-accessed-your-pension

wjr4

You should have informed the active pension schemes that you are now subject to the MPAA(you are supposed to within 90 days). The withdrawal letter from Prudential would have said this.  

Albermarle

To be clear the £4K includes any tax relief added by the SIPP provider.

midlandsimon

Tax Free Cash withdrawals do not activate the MPAA however if you have taken just a penny of taxable income then this will mean the MPAA applies to you. Ask the pension provider who you took the withdrawal from and they will let you know straightaway.   

wjr4

midlandsimon said:

Tax Free Cash withdrawals do not activate the MPAA however if you have taken just a penny of taxable income then this will mean the MPAA applies to you. Ask the pension provider who you took the withdrawal from and they will let you know straightaway.   

As they have ‘cashed it in’, I’m assuming they would have taken taxable income as it highly unlikely it would all be tax-free cash.  

midlandsimon

wjr4 said:

midlandsimon said:

Tax Free Cash withdrawals do not activate the MPAA however if you have taken just a penny of taxable income then this will mean the MPAA applies to you. Ask the pension provider who you took the withdrawal from and they will let you know straightaway.   

As they have ‘cashed it in’, I’m assuming they would have taken taxable income as it highly unlikely it would all be tax-free cash.  

Depends how big the deposit was 

sevenhills

wjr4 said:

You should have informed the active pension schemes that you are now subject to the MPAA(you are supposed to within 90 days). The withdrawal letter from Prudential would have said this.  

I did not have my SIPP at the time. I don't recall the question coming up when I signed up with my SIPP.

The money in my SIPP only amounts to £13k, so had I realised my limit was £4 I could have stuck to that limit easily.

Perhaps they will take into account the previous years unused amount.

dunstonh

I did not have my SIPP at the time. I don't recall the question coming up when I signed up with my SIPP.

That is strange as its a standard question on all the applications I can recall.    The wording varies (have you accessed a pension flexibly..... or are you subject to the MPAA.....)

And you appear to have missed it from the provider you took the UFPLS from. 

Perhaps they will take into account the previous years unused amount.

No. Carry forward ceases to be an option once you trigger the MPAA.

HMRC are typically slow on these things as its software checked.  It often arrives 3 years later (although currently taking longer) and they charge you penalty interest that doubles the tax.  You can usually avoid the penalty tax by pre-empting it and dealing with HMRC early.