Pension Annual Allowance After Accessing Drawdown

slpierce

I'm 55 yrs old and still in part time employment I earn around £42k a year, and have just cashed in a small personal pension (£80000 pot) I have taken 25% tax free cash and atm the rest is in a drawdown that I haven't touched yet, currently valued at £61k.

I understand tax brackets, I would pay 40% tax on any income over £50k, atm I'm paying 20% tax on my salary of £42k.

If I dip into the drawdown, for example I take £8k from it, my understanding is I would pay 20% on that £8k.

Now here's my worry, I read that if I do this I will be severely restricted in how much that I and any future or current employer can contribute to a pension, £10k I believe, is this correct? 

The reason I'm asking is I'm planning on changing jobs to an employer with similar salary that has a generous pension contribution, can anyone clarify this, it seems very unfair if true?

artyboy

slpierce said:

I'm 55 yrs old and still in part time employment I earn around £42k a year, and have just cashed in a small personal pension (£80000 pot) I have taken 25% tax free cash and atm the rest is in a drawdown that I haven't touched yet, currently valued at £61k.

I understand tax brackets, I would pay 40% tax on any income over £50k, atm I'm paying 20% tax on my salary of £42k.

If I dip into the drawdown, for example I take £8k from it, my understanding is I would pay 20% on that £8k.

Now here's my worry, I read that if I do this I will be severely restricted in how much that I and any future or current employer can contribute to a pension, £10k I believe, is this correct? 

The reason I'm asking is I'm planning on changing jobs to an employer with similar salary that has a generous pension contribution, can anyone clarify this, it seems very unfair if true?

Yes that's correct, the Money Purchase Annual Allowance (MPAA) kicks in as soon as you have taken as little as 1p of taxable income from a DC pension. 

Albermarle

Money purchase annual allowance (MPAA) | MoneyHelper

It was only £4K until relatively recently.

It is to stop people recycling pension money back into a pension, so getting two bites of the tax relief cherry.

westv

I dont think £10k is that bad really. 20% of your salary for someone earning £50k a year.

Marcon

slpierce said:

I'm 55 yrs old and still in part time employment I earn around £42k a year, and have just cashed in a small personal pension (£80000 pot) I have taken 25% tax free cash and atm the rest is in a drawdown that I haven't touched yet, currently valued at £61k.

I understand tax brackets, I would pay 40% tax on any income over £50k, atm I'm paying 20% tax on my salary of £42k.

If I dip into the drawdown, for example I take £8k from it, my understanding is I would pay 20% on that £8k.

Now here's my worry, I read that if I do this I will be severely restricted in how much that I and any future or current employer can contribute to a pension, £10k I believe, is this correct? 

The reason I'm asking is I'm planning on changing jobs to an employer with similar salary that has a generous pension contribution, can anyone clarify this, it seems very unfair if true?

Why do people always think something is 'unfair' just because it doesn't suit what they might want to do? The MPAA isn't new and is easy enough to 'clarify' with a simple bit of googling, or just looking at the information relating to your personal pension, which will include the relevant information.

You now have a choice:

1. don't take any taxable funds from the personal pension currently in a drawdown pot and keep the full maximum of £60K a year tax-relievable annual allowance; or
2. take taxable cash and accept that you will be limited to £10K a year contributions to any future money purchase pension arrangement, including tax relief/employer contributions. You will also be unable to use carry forward, should that ever be something you might wish to consider.

Hoenir

slpierce said:

The reason I'm asking is I'm planning on changing jobs to an employer with similar salary that has a generous pension contribution, can anyone clarify this, it seems very unfair if true?

The rules have been in place for sometime. When dealing with pensions the advice is to always to make an informed decision before taking any action.  As once done there's no going back. No unfairness when making personal decisions. 

slpierce

Thanks for the replies, one more question so the 10k per year limit is just on my side of the contributions, if so that's not so bad as I can put in 7% which would be under the £10k limit and my employers 14% would be irrelevant?

Dazed_and_C0nfused

slpierce said:

Thanks for the replies, one more question so the 10k per year limit is just on my side of the contributions, if so that's not so bad as I can put in 7% which would be under the £10k limit and my employers 14% would be irrelevant?

MPAA is the annual allowance limit, it relates to all contributions, including employers.

Sarahspangles

You haven’t really said what your objective is in taking money from your pension while you’re still working. That might be relevant.

Triumph13

As someone who was hit by the MPAA when it was £4k, and had to pay back the tax relief in the knowledge that I'd get taxed again when I withdraw from the pension, I can definitely agree that it hurts, but I too don't agree it's unfair.  The whole point of allowing us tax relief is to help us save for after we stop working.  

More to the point, if you are going to be paying 7% and your employer 14%, you'd need a pretty a nearly 20% pay rise from your current £42k pa for that to come to more than £10k a year.

slpierce

Triumph13 said:

As someone who was hit by the MPAA when it was £4k, and had to pay back the tax relief in the knowledge that I'd get taxed again when I withdraw from the pension, I can definitely agree that it hurts, but I too don't agree it's unfair.  The whole point of allowing us tax relief is to help us save for after we stop working.  

More to the point, if you are going to be paying 7% and your employer 14%, you'd need a pretty a nearly 20% pay rise from your current £42k pa for that to come to more than £10k a year.

I agree, after going more in depth about the subject It's not unfair, and looking at what people have said on here I'll be just under the £10k anyway on a £42k salary with 7%/14% with some quick maths it's around £8820 per year contributions, thank you all for your help, oh one more question I also have a Nest workplace pension would there be a penalty transferring that to a new pension with a new employer taking into consideration everything I have discussed on here?