Inadvertently triggered MPAA due to a 'restoration' payment

zAndy1

 I have received a letter today from one of my pension schemes that I have been receiving a pension income from to advise me that due to receiving a one off lump sum 'restoration' payment I have triggered the MPAA and will now be limited to a tax relief limit of £4000 on future pension contributions. The one off lump sum payment was only £175 which is a trivial amount to have such significant consequences for my future pension contributions. I am 55 and a 40% tax payer and am currently contributing approx £423 a month via salary sacrifice (employer payment) which would obviously bust the £4000pa limit albeit not by much but I have reduced my contributions temporarily and would have definitely wanted to increase them to probably twice that much at some point next year. The payment I received was as far as I understood it just a compensation payment for certain members who's pension payments don't increase by inflation and I had no idea it was going to trigger the MPAA (I'd never heard of it until today). Obviously I'm very annoyed about this , do I have any options to reverse this do you think or am I just going to have to live with it? 

biscan25

Is this BSPS by any chance?

biscan25

If so the details are all in here. Basically, these payments were structured as an immediately crystallised (paid out) defined contribution pension.
You would have needed to opt out to instead have a one off increase to your pension.
Details are here (which you should have received). https://www.bspspensions.com/Uploads/Docs/Under 75 - Restoration leaflet-Under 75-online.pdf
I have no idea whether this can be reversed. The next step would be to talk to the administrator.

zAndy1

biscan25 said:

Is this BSPS by any chance?

Yes it is

zAndy1

biscan25 said:

If so the details are all in here. Basically, these payments were structured as an immediately crystallised (paid out) defined contribution pension.
You would have needed to opt out to instead have a one off increase to your pension.
Details are here (which you should have received). https://www.bspspensions.com/Uploads/Docs/Under 75 - Restoration leaflet-Under 75-online.pdf
I have no idea whether this can be reversed. The next step would be to talk to the administrator.

hmmm, well I can safely say I don't recall ever seeing that leaflet before. Well what a nightmare, right I'm going to ring them and see if there's anything that can be done as I really don't want to be subject to this £4000pa limit in future 

biscan25

Yeah, I agree this outcome is terrible. Given how many of these payments have been paid out, there's bound to be many others in your position.

zAndy1

I was asked to email them explaining the situation and they are going to look into it. If they don't agree to reverse this I feel I will have no option but to take this further, it's really not acceptable

zAndy1

I'm still waiting to hear back from British Steel about this, pretty poor really I emailed them on the 7th, will have to chase it up I suspect and find out what they're planning to do 

zAndy1

I had a thought actually, how does getting a 'restoration' (compentation basically) payment trigger the MPAA anyway. It's not like I've actively withdrawn money that was in my pension pot over and above the tax free 25% lump sum, it's a compensation payment BS are paying to compensate for the lack of inflationary increases so why would receiving that trigger the MPAA? 

Malthusian

zAndy1 said:

I had a thought actually, how does getting a 'restoration' (compentation basically) payment trigger the MPAA anyway. 

It's been treated in the same way as an "uncrystallised funds pension lump sum" (the most common way of cashing in a whole pension fund at once), which is considered "flexible" withdrawal of benefits. So the scheme is definitely correct on that point.
I was about to say that the payment could in theory have been made as a "small pot lump sum", which wouldn't have triggered the MPAA - however, those are only allowed if they extinguish the member's full rights under the pension scheme, and your main BSPS pension was still in payment, so that might have blocked that option.
A week and a half is not a long time in pensionsland, but I would give them a ring and try to pin them down to a timescale if they haven't given you one already.
It seems that the pension scheme took the view that everyone who was entitled to a restoration payment would either be retired and wouldn't care about triggering the MPAA, or would carefully read the leaflet page by page until they got to the bottom of page 6, then opt out. 

zAndy1

So I've had a reply from BS about this, the first half of the email is basically them saying people had plenty of warning about this at which point I thought they were going to say tough there's nothing we can do but the 2nd half was more useful

'We understand from your email that, rather than receive the lump sum payment, you instead wish to receive your restoration payment in the form of an additional pension.  I can confirm we are prepared to put your restoration benefit into payment in this way conditional upon you returning the net lump sum payment of £175.20 to the Scheme bank account[1] quoting the reference xxxxxxxxxxxx' 

On receipt of the net lump sum payment, we will make alternative arrangements in respect of your restoration payment: specifically, we will make an additional pension[2]payment of £10.72 per annum to you with effect from 5 October 2022.

Please note that the Trustee of the British Steel Pension Scheme can give no warranty as to how HM Revenue & Customs (HMRC) may treat the return of the lump sum payment. Following the return of your net lump sum payment and us putting an additional pension into payment as described above, we will write to you to confirm that this has been done and to set out the relevant amounts. You should retain that letter for your records and may wish to share it with HMRC to evidence the form and amount of the benefits you have received.'

Does anyone think this will be enough for HMRC to remove the MPAA against me? That email doesn't sound like it's a guarantee they will even if I go down this route, I think maybe I'll have to ring HMRC and ask as it seems pointless doing this if it's going to make no difference anyway. Anyone have experience of getting an MPAA flag reversed?