Money Purchase Annual Allowance

RobDiss

Hi, I have triggered the MPAA due to taking a small DC pension in full. This now means that my tax relief allowance p.a. goes down from £60K to £10K. This seems a massive drop off, is it likely to be increased anytime? As I will have to pay tax over the £10K, is it worth saving less into the pension to mitigate the tax & save it elsewhere, any advice? Many thanks.

Dazed_and_C0nfused

RobDiss said:

Hi, I have triggered the MPAA due to taking a small DC pension in full. This now means that my tax relief allowance p.a. goes down from £60K to £10K. This seems a massive drop off, is it likely to be increased anytime? As I will have to pay tax over the £10K, is it worth saving less into the pension to mitigate the tax & save it elsewhere, any advice? Many thanks.

It has already been increased in recent times from £4k to £10k so a further increase is probably unlikely.  But only the Chancellor knows for sure.

Why did you trigger MPAA if it was going to cause you problems?

How small was the "small DC pension"?

Secret2ndAccount

Agreed, it's unlikely the MPAA gets increased any time soon.
The penalty for exceeding the MPAA is hefty. There's not much point making just a personal contribution to a pension beyond the MPAA. However, if it's a mix of you paying in some and your employer paying in some, it might well be worth taking the penalty hit in order to get your hands on the free money from your employer. The net result often works out positive, even after the penalty.
There is a system called 'Scheme Pays'. This means that the penalty charge gets taken out of your pension rather than your pay packet. At this level of contribution your pension does not have to offer it, but some do on a voluntary basis. You should also consider whether it's beneficial depleting your pension in this way. However, if you're a spend today and be poor later kind of person, you might want to see if Scheme Pays is available.
You can put up to 20k/yr into a Stocks and Shares ISA and invest this for growth. You have already paid income tax on the money you put in the ISA. There is no further tax on growth or on withdrawals. Once you are into Annual Allowance territory the ISA can be a better option than pension contributions.

Marcon

RobDiss said:

Hi, I have triggered the MPAA due to taking a small DC pension in full. This now means that my tax relief allowance p.a. goes down from £60K to £10K. This seems a massive drop off, is it likely to be increased anytime? As I will have to pay tax over the £10K, is it worth saving less into the pension to mitigate the tax & save it elsewhere, any advice? Many thanks.

You say 'a small DC pension...'. If the pot was £10K or less, are you sure you didn't take it (albeit accidentally!) under the 'small pots' regime, which doesn't trigger the MPAA? Your provider needs to offer this facility and you need to ask for it, but you wouldn't be the first person to absentmindedly tick the relevant box when applying for payment, without realising how helpful doing so could be.