Drawdown pension

NedS

smellywelly1234 said:

NedS said:

The 25% tax free is just that - it can be ignored when considering your taxable income.

If you are earning £21,500 gross and take a further £20,000 of taxable income from a pension, your combined taxable income will be £41,500.

Of more concern is that by taking taxable income from a pension, you will have triggered the MPAA and will now be limited to contributing no more that £4,000 gross per year to a pension fund (including employers contributions) which could be disastrous for you. Are you aware of this and have you fully considered the implications?

Further, do you have other funds available to fund your retirement? If not, what do you plan to live on once you finish work? Pensions are intended to fund retirement and generally it is not advisable to be withdrawing money from them other than as part of a retirement plan.

Hi yes I have a final salary pension which has 30 years contributions. I haven't decided what to do yet as the money was for my daughter for her birthday end of December, to buy a property with, so was just weighing everything up. So if I do decide to go ahead and trigger the MPAA it wont affect my final salary pension in anyway when I retire and start to draw this one and it will only affect  the one I am paying into now as I will only be able to pay in £4,000 contributions per year. The MPAA £4,000 per year is that for the rest of my working life or does it reset after 1 year. Also do I have to notify my other pension company's if I have triggered the MPAA.

Thanks      

Yes, the MPAA restricts the amount (combined employee and employer) that can be contributed into a DC pension scheme annually - so for ever. It does not affect DB/final salary schemes.

Yes, you must notify all of your pension schemes that you have triggered the MPAA and then must not exceed the £4k limit. The MPAA only limits future contributions, it does not affect withdraws.

smellywelly1234

NedS said:

smellywelly1234 said:

NedS said:

The 25% tax free is just that - it can be ignored when considering your taxable income.

If you are earning £21,500 gross and take a further £20,000 of taxable income from a pension, your combined taxable income will be £41,500.

Of more concern is that by taking taxable income from a pension, you will have triggered the MPAA and will now be limited to contributing no more that £4,000 gross per year to a pension fund (including employers contributions) which could be disastrous for you. Are you aware of this and have you fully considered the implications?

Further, do you have other funds available to fund your retirement? If not, what do you plan to live on once you finish work? Pensions are intended to fund retirement and generally it is not advisable to be withdrawing money from them other than as part of a retirement plan.

Hi yes I have a final salary pension which has 30 years contributions. I haven't decided what to do yet as the money was for my daughter for her birthday end of December, to buy a property with, so was just weighing everything up. So if I do decide to go ahead and trigger the MPAA it wont affect my final salary pension in anyway when I retire and start to draw this one and it will only affect  the one I am paying into now as I will only be able to pay in £4,000 contributions per year. The MPAA £4,000 per year is that for the rest of my working life or does it reset after 1 year. Also do I have to notify my other pension company's if I have triggered the MPAA.

Thanks      

Yes, the MPAA restricts the amount (combined employee and employer) that can be contributed into a DC pension scheme annually - so for ever. It does not affect DB/final salary schemes.

Yes, you must notify all of your pension schemes that you have triggered the MPAA and then must not exceed the £4k limit. The MPAA only limits future contributions, it does not affect withdraws.

Hi, I take it I only inform the pension scheme I am paying into currently. 

Thanks 

phynix_uk

The MPAA could cause you issues if you're still an active member of the DB scheme. The MPAA of £4,000 doesn't just take your contributions for the current tax year into account but any uplift on the existing benefits.

For example. A pay rise would increase your salary and depending on the scheme rules this could mean the entire 30 years worth of benefits are uplifted based on the new salary. This uplift also counts towards your annual allowance. It wouldn't take much of a salary increase to blast through your MPAA. 

Pat38493

phynix_uk said:

The MPAA could cause you issues if you're still an active member of the DB scheme. The MPAA of £4,000 doesn't just take your contributions for the current tax year into account but any uplift on the existing benefits.

For example. A pay rise would increase your salary and depending on the scheme rules this could mean the entire 30 years worth of benefits are uplifted based on the new salary. This uplift also counts towards your annual allowance. It wouldn't take much of a salary increase to blast through your MPAA. 

But if his DB pension is deferred and he is no longer contributing to it, then it's not an issue as the only uplifts are coming from indexing?

Albermarle

phynix_uk said:

The MPAA could cause you issues if you're still an active member of the DB scheme. The MPAA of £4,000 doesn't just take your contributions for the current tax year into account but any uplift on the existing benefits.

For example. A pay rise would increase your salary and depending on the scheme rules this could mean the entire 30 years worth of benefits are uplifted based on the new salary. This uplift also counts towards your annual allowance. It wouldn't take much of a salary increase to blast through your MPAA. 

The MPAA does not apply to defined benefit schemes, active or deferred. It is not triggered by taking income from a defined benefit, and if it is triggered by taking taxable income from a DC scheme, it has no effect on any defined benefit scheme in any way.

Notepad_Phil

smellywelly1234 said:

NedS said:

smellywelly1234 said:

NedS said:

The 25% tax free is just that - it can be ignored when considering your taxable income.

If you are earning £21,500 gross and take a further £20,000 of taxable income from a pension, your combined taxable income will be £41,500.

Of more concern is that by taking taxable income from a pension, you will have triggered the MPAA and will now be limited to contributing no more that £4,000 gross per year to a pension fund (including employers contributions) which could be disastrous for you. Are you aware of this and have you fully considered the implications?

Further, do you have other funds available to fund your retirement? If not, what do you plan to live on once you finish work? Pensions are intended to fund retirement and generally it is not advisable to be withdrawing money from them other than as part of a retirement plan.

Hi yes I have a final salary pension which has 30 years contributions. I haven't decided what to do yet as the money was for my daughter for her birthday end of December, to buy a property with, so was just weighing everything up. So if I do decide to go ahead and trigger the MPAA it wont affect my final salary pension in anyway when I retire and start to draw this one and it will only affect  the one I am paying into now as I will only be able to pay in £4,000 contributions per year. The MPAA £4,000 per year is that for the rest of my working life or does it reset after 1 year. Also do I have to notify my other pension company's if I have triggered the MPAA.

Thanks      

Yes, the MPAA restricts the amount (combined employee and employer) that can be contributed into a DC pension scheme annually - so for ever. It does not affect DB/final salary schemes.

Yes, you must notify all of your pension schemes that you have triggered the MPAA and then must not exceed the £4k limit. The MPAA only limits future contributions, it does not affect withdraws.

Hi, I take it I only inform the pension scheme I am paying into currently. 

Thanks 

No, you're supposed to tell every DC pension scheme that you currently have (whether paying into or not), plus any new DC pension schemes that you open in the future (even if you just transfer an existing pension into it and never pay any new money into it).

smellywelly1234

Hi again I also have an AVC but that's not active at the moment do I have to tell them ?? 

Albermarle

smellywelly1234 said:

Hi again I also have an AVC but that's not active at the moment do I have to tell them ?? 

There is a common misconception that if you are not paying into a DC pension, it becomes inactive or frozen.
In fact your money remains invested and goes up and down with the markets. Also the provider and the investment funds, charges regular fees. So it is active and therefore best to inform them also.