25% Lump sum - MPAA

oliel

I'm 52 and have 3 separate pensions.    I was thinking of taking a lump sum at 55 somewhere below th 25% tax free amount and continuing paying into my pension until i retire at 65 - Im i correct in thinking that if i do this I can only put up to £10k into my pension per year because of MPAA?  My pensions are with Pru, Aegon and Nest I understand MPAA only applies to defined benefit pensions I not sure if any of my pensions are those.  Thanks all.  After doing calculations I think the lump sum would suit my requirements but wondered if there were nay other pitfalls Im missing.

artyboy

No, MPAA only kicks in if you take TAXABLE income from a DC pension (NOT DB) - if you only take out the 25% tax free sums from your pensions and leave the rest untouched, you won't be impacted.

Marcon

oliel said:

I'm 52 and have 3 separate pensions.    I was thinking of taking a lump sum at 55 somewhere below th 25% tax free amount and continuing paying into my pension until i retire at 65 - Im i correct in thinking that if i do this I can only put up to £10k into my pension per year because of MPAA?  My pensions are with Pru, Aegon and Nest I understand MPAA only applies to defined benefit pensions I not sure if any of my pensions are those.  Thanks all.  After doing calculations I think the lump sum would suit my requirements but wondered if there were nay other pitfalls Im missing.

The MPAA kicks in if you access a DC pension 'flexibly'. If you take tax free cash and use the balance to buy a whole life annuity, then it isn't triggered. Nor is it triggered if you take funds from a DC pension using the 'small pots' regime - see https://www.litrg.org.uk/pensions/pension-withdrawals/small-pensions

Will you reach your 55th birthday before 6 April 2028? If not, you will have to wait until age 57 (unless any of your pensions have a 'protected pension age' - check with the provider).

Albermarle

Make sure that when you ask for the lump sum that it is clear that you only want the tax free part ( or part of the tax free part).

From other threads you may well find that the Pru want to charge you 3% for doing this. The way to avoid that is just to transfer that pension to one of the other ones ( or a new one) . Also note it is easier to transfer DC pensions before taking any tax free cash, rather than after.

Also if you want to take the tax free from your current workplace pension, then check with them first that this is OK to then carry on making contributions. ( nothing to do with MPAA, just providers have their own quirks) .

oliel

Marcon said:

oliel said:

I'm 52 and have 3 separate pensions.    I was thinking of taking a lump sum at 55 somewhere below th 25% tax free amount and continuing paying into my pension until i retire at 65 - Im i correct in thinking that if i do this I can only put up to £10k into my pension per year because of MPAA?  My pensions are with Pru, Aegon and Nest I understand MPAA only applies to defined benefit pensions I not sure if any of my pensions are those.  Thanks all.  After doing calculations I think the lump sum would suit my requirements but wondered if there were nay other pitfalls Im missing.

The MPAA kicks in if you access a DC pension 'flexibly'. If you take tax free cash and use the balance to buy a whole life annuity, then it isn't triggered. Nor is it triggered if you take funds from a DC pension using the 'small pots' regime - see https://www.litrg.org.uk/pensions/pension-withdrawals/small-pensions

Will you reach your 55th birthday before 6 April 2028? If not, you will have to wait until age 57 (unless any of your pensions have a 'protected pension age' - check with the provider).

Yes 55 in autumn 2027.  It's a difficult decision to make - I've heard people generally advise not to take lump sum I'm not sure why.  My feeling is I'd like to do some things before I get older so I could use the money to do these things  - having done calculations if i take a lump tax free sum I don't think its going to make a massive difference to my annual pension when I retire - which will probably be 65 or 67.  Are there downsides to wither the flexibly approach or the small pots regime.  Just wanting to be as tax efficient as possible  but also get to have a few life experiences before I get too old.

oliel

oliel said:

Marcon said:

oliel said:

I'm 52 and have 3 separate pensions.    I was thinking of taking a lump sum at 55 somewhere below th 25% tax free amount and continuing paying into my pension until i retire at 65 - Im i correct in thinking that if i do this I can only put up to £10k into my pension per year because of MPAA?  My pensions are with Pru, Aegon and Nest I understand MPAA only applies to defined benefit pensions I not sure if any of my pensions are those.  Thanks all.  After doing calculations I think the lump sum would suit my requirements but wondered if there were nay other pitfalls Im missing.

The MPAA kicks in if you access a DC pension 'flexibly'. If you take tax free cash and use the balance to buy a whole life annuity, then it isn't triggered. Nor is it triggered if you take funds from a DC pension using the 'small pots' regime - see https://www.litrg.org.uk/pensions/pension-withdrawals/small-pensions

Will you reach your 55th birthday before 6 April 2028? If not, you will have to wait until age 57 (unless any of your pensions have a 'protected pension age' - check with the provider).

Yes 55 in autumn 2027.  It's a difficult decision to make - I've heard people generally advise not to take lump sum I'm not sure why.  My feeling is I'd like to do some things before I get older so I could use the money to do these things  - having done calculations if i take a lump tax free sum I don't think its going to make a massive difference to my annual pension when I retire - which will probably be 65 or 67.  Are there downsides to wither the flexibly approach or the small pots regime.  Just wanting to be as tax efficient as possible  but also get to have a few life experiences before I get too old.

Really I'm just looking to be able to take a tax free lump at 55 and continue paying into my nest pension 
1 pension currently has £12k in - buyback scheme - previous employer pension that is no longer run
1 has about £10K in prudential private pension not through work
Nest work pension has about £30k in it but this is increasing by £11k contributions this year and £11k+inflation  every year thereafter

Marcon

oliel said:

I'm 52 and have 3 separate pensions.    I was thinking of taking a lump sum at 55 somewhere below th 25% tax free amount and continuing paying into my pension until i retire at 65 - Im i correct in thinking that if i do this I can only put up to £10k into my pension per year because of MPAA?  My pensions are with Pru, Aegon and Nest I understand MPAA only applies to defined benefit pensions I not sure if any of my pensions are those.  Thanks all.  After doing calculations I think the lump sum would suit my requirements but wondered if there were nay other pitfalls Im missing.

Have you read the answers to your previous questions about pensions eg https://forums.moneysavingexpert.com/discussion/6546779/pension-questions#latest

and followed up where people have suggested you need to check things with your scheme...?

oliel said:

Marcon said:

oliel said:

I'm 52 and have 3 separate pensions.    I was thinking of taking a lump sum at 55 somewhere below th 25% tax free amount and continuing paying into my pension until i retire at 65 - Im i correct in thinking that if i do this I can only put up to £10k into my pension per year because of MPAA?  My pensions are with Pru, Aegon and Nest I understand MPAA only applies to defined benefit pensions I not sure if any of my pensions are those.  Thanks all.  After doing calculations I think the lump sum would suit my requirements but wondered if there were nay other pitfalls Im missing.

The MPAA kicks in if you access a DC pension 'flexibly'. If you take tax free cash and use the balance to buy a whole life annuity, then it isn't triggered. Nor is it triggered if you take funds from a DC pension using the 'small pots' regime - see https://www.litrg.org.uk/pensions/pension-withdrawals/small-pensions

Will you reach your 55th birthday before 6 April 2028? If not, you will have to wait until age 57 (unless any of your pensions have a 'protected pension age' - check with the provider).

Yes 55 in autumn 2027.  It's a difficult decision to make - I've heard people generally advise not to take lump sum I'm not sure why.  My feeling is I'd like to do some things before I get older so I could use the money to do these things  - having done calculations if i take a lump tax free sum I don't think its going to make a massive difference to my annual pension when I retire - which will probably be 65 or 67.  Are there downsides to wither the flexibly approach or the small pots regime.  Just wanting to be as tax efficient as possible  but also get to have a few life experiences before I get too old.

I note from a previous post that you are a higher rate taxpayer. Not sure what sort of calculations you've done, but given how small your pension savings are in relation to your earnings (although happily they look as if they are getting a hefty chunk of cash from now on), taking any of them at age 55 just to have some 'spending money today' is going to have a substantial impact on your future pension provision. 

Maybe time for some proper professional advice, or at the very least do some background reading/clue yourself up - there's only so much random questions on a forum can do. Have a look at https://www.moneyhelper.org.uk/en/pensions-and-retirement and also consider a free appointment for guidance (not advice): https://www.moneyhelper.org.uk/en/pensions-and-retirement/pension-wise

oliel

Marcon said:

oliel said:

I'm 52 and have 3 separate pensions.    I was thinking of taking a lump sum at 55 somewhere below th 25% tax free amount and continuing paying into my pension until i retire at 65 - Im i correct in thinking that if i do this I can only put up to £10k into my pension per year because of MPAA?  My pensions are with Pru, Aegon and Nest I understand MPAA only applies to defined benefit pensions I not sure if any of my pensions are those.  Thanks all.  After doing calculations I think the lump sum would suit my requirements but wondered if there were nay other pitfalls Im missing.

The MPAA kicks in if you access a DC pension 'flexibly'. If you take tax free cash and use the balance to buy a whole life annuity, then it isn't triggered. Nor is it triggered if you take funds from a DC pension using the 'small pots' regime - see https://www.litrg.org.uk/pensions/pension-withdrawals/small-pensions

Will you reach your 55th birthday before 6 April 2028? If not, you will have to wait until age 57 (unless any of your pensions have a 'protected pension age' - check with the provider).

I've been having a good read,   Nest says this

• If you take a lump sum and then continue making contributions, you may be liable for additional tax charges if your total contributions exceed £10,000 in a tax year.  

NEST does not offer annuities, but can facilitate the purchase of one from another provider.   I'm thinking id have to stay with nest as thats my workplace pension and to save tax that is where the majority of my contributions go so I would be limited to £10k contributions per year?


I guess what Im wondering is if i take 25% tax free from each pension - continue to put up to the 10k into my nest pension is there any way i can put more money in to any of my other pensions without get taxed on it?  Is it £10 in total for all pension contributions or each pension?

af1963

There are two main ways you could take a lump sum from your pension, and that sentence from Nest only applies to one of them, although that's not clear from the wording.

Suppose you have £200k or more in your pension and want to take out £50k

You could take out 50k of your tax free cash, and move £150K into drawdown so that anything taken from this £150k later, or from any subsequent growth in that portion, will all be taxed.  If you do that, you haven't taken any *taxed* income, so MPAA won't apply.

Or

You could take out a £50k UFPLS lump sum, of which 25% will be tax free and 75% will be taxed.  You'll pay tax on the taxable portion, but the £150k that stays in the pension, and any further growth, will still have its 25% tax free allowance available for later. You'll trigger MPAA if you do it this way and be limited to £10k contributions each year.




 

Marcon

oliel said:

Marcon said:

oliel said:

I'm 52 and have 3 separate pensions.    I was thinking of taking a lump sum at 55 somewhere below th 25% tax free amount and continuing paying into my pension until i retire at 65 - Im i correct in thinking that if i do this I can only put up to £10k into my pension per year because of MPAA?  My pensions are with Pru, Aegon and Nest I understand MPAA only applies to defined benefit pensions I not sure if any of my pensions are those.  Thanks all.  After doing calculations I think the lump sum would suit my requirements but wondered if there were nay other pitfalls Im missing.

The MPAA kicks in if you access a DC pension 'flexibly'. If you take tax free cash and use the balance to buy a whole life annuity, then it isn't triggered. Nor is it triggered if you take funds from a DC pension using the 'small pots' regime - see https://www.litrg.org.uk/pensions/pension-withdrawals/small-pensions

Will you reach your 55th birthday before 6 April 2028? If not, you will have to wait until age 57 (unless any of your pensions have a 'protected pension age' - check with the provider).

I've been having a good read,   Nest says this

• If you take a lump sum and then continue making contributions, you may be liable for additional tax charges if your total contributions exceed £10,000 in a tax year.  

NEST does not offer annuities, but can facilitate the purchase of one from another provider.   I'm thinking id have to stay with nest as thats my workplace pension and to save tax that is where the majority of my contributions go so I would be limited to £10k contributions per year?


I guess what Im wondering is if i take 25% tax free from each pension - continue to put up to the 10k into my nest pension is there any way i can put more money in to any of my other pensions without get taxed on it?  Is it £10 in total for all pension contributions or each pension?

If you trigger the MPAA you are limited to £10K tax-relievable pension contributions per year.  That £10K includes the employer contribution; and your contribution + tax relief on personal contributions.

At the moment you're picking up pieces of a jigsaw and need a hand to assemble them into a viewable (and helpful) picture. Try an appointment with PensionWise - it does sound as if you'd benefit from a live chat with someone.

QrizB

oliel said:.

Really I'm just looking to be able to take a tax free lump at 55 and continue paying into my nest pension 
1 pension currently has £12k in - buyback scheme - previous employer pension that is no longer run
1 has about £10K in prudential private pension not through work
Nest work pension has about £30k in it but this is increasing by £11k contributions this year and £11k+inflation  every year thereafter

So, excluding NEST, you've got £22k in pensions? And you earn enough to be a higher-rate taxpayer?
I don't know anything about your wider financial position, but rather than raiding your pensions could you just take a personal loan to get the £2-5k that you are looking for? Or a 0% credit card?