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.

RobDiss

Secret2ndAccount said:

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.

Many thanks S2A. Wondering if just taking the hit is the way to go rather than reducing my pension contribution (hopefully growth will outstrip the tax relief they claw back?). I am also conscious of having my personal allowance reduced as I will be over the 100k of income. I will look into scheme pays. If I do reduce my pension contributions, ensuring I max out the ISA limit will be essential. I am also looking at premium bonds as they are tax efficient. Cheers.

FIREDreamer

Marcon said:

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.

The small pot option doesn’t have to be offered - I believe Vanguard refuses to do this?

EDIT: Conversely, Hargreaves Lansdown can create an artificial small pot from a larger one - I have used this facility twice, with one more bite at this cherry available (only 3 small pots from a personal pension are allowed).

Marcon

FIREDreamer said:

Marcon said:

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.

The small pot option doesn’t have to be offered - I believe Vanguard refuses to do this?

Indeed, which is why I commented that the provider needs to offer the facility. A lot of providers with 'older' contracts don't offer it, even those now offering more modern contracts which do cater for it.

westv

Marcon said:

FIREDreamer said:

Marcon said:

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.

The small pot option doesn’t have to be offered - I believe Vanguard refuses to do this?

Indeed, which is why I commented that the provider needs to offer the facility. A lot of providers with 'older' contracts don't offer it, even those now offering more modern contracts which do cater for it.

Are there any instances with these "legacy systems" where a customer has been better off because it hasn't been able to deal with something that will negatively impact them? 

dunstonh

westv said:

Marcon said:

FIREDreamer said:

Marcon said:

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.

The small pot option doesn’t have to be offered - I believe Vanguard refuses to do this?

Indeed, which is why I commented that the provider needs to offer the facility. A lot of providers with 'older' contracts don't offer it, even those now offering more modern contracts which do cater for it.

Are there any instances with these "legacy systems" where a customer has been better off because it hasn't been able to deal with something that will negatively impact them? 

Any option that reduces functionality/availability from all the available options will not improve the outcome.  It will either have no impact (as the option available wasnt needed or the person can transfer to a plan that does allow it) or a worse outcome (as the person didnt transfer it and went with a less optimal solution).

SVaz

Now it’s triggered,  you may not even be able to put more than £10k in,  some companies simply refuse to accept it.
Plus there can be penalty fines if you don’t report what you’ve done fairly quickly.