MPAA and Annuities

Spivo46

Can anyone explain to me why purchasing a lifetime annuity, that is not investment linked, does not trigger the MPAA. Surely this still allows you to recycle money in the same way?

Linton

The MPAA is just an ad hoc bodge to the system to prevent large scale recycling by the rich.  Presumably that is not really likely with an annuity seeing as it will take you many years to extract a significant amount of money and in general people with annuities wont be "earning".   Probably one would be better off never buying an annuity in the first place and just keeping the money invested.

Pensions_matter_2

As Linton says, with annuities generally and ‘capped’ drawdown, you are restricted in the income you can take in a year, so the scope for recycling income back in as contributions (say you are earning) and then taking some tax free cash from these funds later is very limited. This is not the case where you can take the whole pension fund out as a lump sum and then recycle it. Thats my understanding at least! Im sure others will correct me if Im wrong.

There are separate rules around recycling tax free cash, of course.

Malthusian

As others have said, it probably won't. To recycle an annuity of more than £3,600pa gross, you need enough earned income in the tax year. Most people who buy a lifetime annuity will be retired and won't have any earned income to speak of. Otherwise why buy a lifetime annuity?
Let's say you have £200,000 in a pension fund and buy an annuity of £10,000pa. You then change your mind about spending all your time in the garden and take a job paying £10,000pa. You could recycle the annuity income back into a pension while living off your wages. But with hindsight, you could just have not bought the annuity in the first place and kept the £200,000 pension fund invested. Between the potential investment growth and the potential for annuity rates to rise as you grow older, there is every chance that would have been the better option.