Aegon bond 32 buy out

Kim1965

My wife is retiring through ill health. We are currently sorting two db pensions., one deferred, one active. She has a tiny aegon bond 32 buyout, its only worth 3.5 k it has pritected rights and can be taken tax free as i understand. . She also has a sipp. We still pay into this sipp by dd. We probably wont access the sipp.
My question is, will taking the bond 32 buyout trigger the 4k allowance regarding what can be paid in? 

mark55man

Hi there.

I'm not an expert on section 32 - but generally taking money from defined benefit schemes does not trigger the restricted allowance.  ie the Annual Allowance is £40K but after you have triggered the MPAA (Money Purchase AA) it is £4K from the moment you trigger it.  The clue is in the title its only triggered if you take a penny of income from your money scheme scheme (ie SIPP).

If your wife is retiring and not earning then she is limited to her earned income or £3600 (gross) whichever is the larger.  Pension income does not count as earned income for this purpose.  ie if she literally didn't earn anything in the new tax year then her contribution is maxed at £3600 (until she is 75).  Is she earned say £4.5k gross before she left then that would be her limit.    

Trigger words for MPAA are UFPLS and Flexi Access - especially if taking more than 25% - I am pretty sure these do not apply for a 32.

Marcon

mark55man said:

Hi there.

I'm not an expert on section 32 - but generally taking money from defined benefit schemes does not trigger the restricted allowance.  ie the Annual Allowance is £40K but after you have triggered the MPAA (Money Purchase AA) it is £4K from the moment you trigger it.  The clue is in the title its only triggered if you take a penny of income from your money scheme scheme (ie SIPP).

Just to clarify - the MPAA is only triggered if you flexibly access your benefits from a defined contribution scheme and take anything in excess of the 25% tax free lump sum. It isn't triggered if you take tax free cash and use the balance to buy an annuity. 

Nor it the MPAA triggered if you access your benefits under the 'small pots' regime, where the whole 'pot' has a value of under £10K at the time you cash in the whole amount.

Kim1965

Ok thanks. Its likely her works sick pay will be in excess of 4k for this current tax year and we may pay this into the sipp. 

Marcon

Kim1965 said:

Ok thanks. Its likely her works sick pay will be in excess of 4k for this current tax year and we may pay this into the sipp. 

Don't forget that you can only pay in 80% of her (gross) sick pay - the provider will automatically claim basic rate tax relief and add it to the pot.