Take tax free 25% lump sum triggers MPAA

deepam

Hi,

I am thinking of taking 25% tax free lump sum from my pension. Does this trigger MPAA where mine (or my employer's) contributions cannot exceed 60K/annum or be taxed?

Marcon

deepam said:

Hi,

I am thinking of taking 25% tax free lump sum from my pension. Does this trigger MPAA where mine (or my employer's) contributions cannot exceed 60K/annum or be taxed?

£60K is the 'normal' Annual Allowance.

If you 'flexibly access' a defined contribution pension, and take anything in excess of the 25% tax free cash, you trigger the MPAA and are thereafter limited to £10K a year of tax-relievable contributions (your contributions + tax relief, plus any employer contribution all count towards the £10K). You cannot use carry forward once the MPAA has been triggered.

You do not trigger the MPAA if you use the small pots rule - covered extensively on this forum if you have a browse or see https://www.litrg.org.uk/pensions/pension-withdrawals/small-pensions

DRS1

You had me worried there.

Just taking a TFLS does not trigger the MPAA.

BTW the MPAA is £10k not £60k.

60K will apply because that is the normal Annual Allowance.

Assuming you don't earn so much it is tapered.

deepam

Thanks.

@Marcon what do you mean by 'You cannot use carry forward once the MPAA has been triggered'. What is 'carry forward'

Marcon

deepam said:

Thanks.

@Marcon what do you mean by 'You cannot use carry forward once the MPAA has been triggered'. What is 'carry forward'

See https://www.moneyhelper.org.uk/en/pensions-and-retirement/tax-and-pensions/carry-forward

DRS1

Imagine you earn £100k.

You want to contribute £70K to your pension.

It is less than your taxable earning so that is fine but it is more than the annual allowance of £60k.

In that case you can look back 3 tax years and see if you have unused annual allowance for any of those years.  If you have you can carry £10k of it forward to cover the £10k extra contribution you have made over this years £60k allowance.

But if you have triggered the MPAA you can't go looking back at previous years to see if you can carry forward any unused allowance to get your contribution over the £10k MPAA.