Inherited pension options & MPAA

se2020

I am 50, Self Employed , No current pension arrangements (state pension contributions all all up to date) although I do have funds in a LISA that are currently intended for a house deposit.

I am currently a 40% tax payer.

I am also planning/hoping to buy a house in the near future.

My mother has passed away and I am a beneficiary of a £50k share of her pension.

The pension provider has given me 3 options,

Take as a cash lump sum,

Transfer to a flexible drawdown account,

Transfer to another provider.

Ideally I would like to use these funds as future pension savings. My plan was, buy a house, then start paying the 40% element of my income into a pension.

Upon receiving the options from mum's pension provider I thought the obvious thing to do was to transfer the funds to a drawdown account as I could then use them if required towards the house purchase but, hopefully, leave them untouched for retirement.

Withdrawal as a lump sum seems like a bad idea as I'll loose 40% of it in tax and I don't actually need it for a deposit on a house.

However, I have now read up on MPAA rules.

It seems to me, if I did need to use any of the pension in the drawdown account towards the house, I would then trigger mppa and then only be able to get £4000 tax relief a year on any future pension contributions?

Have I understood that correctly? Does Withdrawal of any funds trigger mppa for ever? Or does the £4k limit only apply to the same tax year that you withdrew funds?

molerat

Once triggered the MPAA is forever but it is now a higher £10K PA, drawing down an inherited pension though should not trigger the MPAA. How old was your mother ?

dunstonh

It seems to me, if I did need to use any of the pension in the drawdown account towards the house, I would then trigger mppa and then only be able to get £4000 tax relief a year on any future pension contributions?

MPAA is triggered if you draw against your own pension. It is not triggered on dependents' pension withdrawals.

However, I have now read up on MPAA rules.

Your comments suggest you are reading out-of date information. (i.e. the £4k limit on MPAA was changed from April 2023). You may wish to change your sources.

DE_612183

https://forums.moneysavingexpert.com/discussion/comment/81882942#Comment_81882942

Surely if the value is transferred it then becomes the OP's pension?

As I see it this is not a dependants pension - I thought that was for a spouse or children under 18…

dunstonh

Surely if the value is transferred it then becomes the OP's pension?

There are two main classifications. Uncrystallised and crystallised. Both of which are discussed frequently.

Crystallised funds can then fall into several sub‑types, for example

• Disqualifying pension credits (from a divorce where the original member had already crystallised)
• Beneficiary/dependant drawdown where withdrawals are currently tax‑free
• Beneficiary/dependant drawdown where withdrawals are taxable

Those sub‑types cannot be mixed in with your “own” pension; they have to be held separately.

Technically, there are a range of other sub‑categories (such as scheme‑specific protections and protected pension ages), but we will ignore those for now as they relate to your own schemes rather than rights inherited or received from someone else.

As I see it this is not a dependants pension - I thought that was for a spouse or children under 18…

I am reading it that the op hasn't made the decision yet on how to take it. There is no reference to the mother's age so we don't know if its tax free or taxable.

There is no single fixed wording for dependants’ drawdown. HMRC use terms such as “dependants’ drawdown pension” and “beneficiary’s flexi‑access drawdown”, and also refer to “nominees” and “successors” in various places.

Individual providers then use their own phrases, most commonly talking about beneficiary, dependant, nominee or successor flexi‑access drawdown. All of these are essentially "crystallised death‑benefit rights" held in someone else’s name, which having just thought about it, sounds like the most useful generic way to describe them.

This is not to be confused with spouse/dependents benefits on a DB pension.

se2020

My mother was over 75.

I believe the lump sum option would have been tax-free if she was under 75?

I have not yet decided what to do with it so it is still sat in the original scheme.

There are 2 other beneficiary's and the pension provider requires us all to choose an option before they release any funds to anyone so obviously I don't want to spend too long making a decision and keeping them waiting..

DRS1

If you are already a 40% taxpayer then taking £50k in one go is going to put you into or beyond the 60% tax trap. So that sounds like a very bad idea. It would make sense to stick it in the flexible drawdown account either with the original pension provider or another one. And hope you invest it wisely.

dunstonh

https://forums.moneysavingexpert.com/discussion/comment/81883282#Comment_81883282

Beneficiary drawdown (or whatever name if your preference!) would be the logical option. It gives you all the time in the world to then decide what happens and the ability to access when you want to, abeit with tax but no MPAA triggered.

se2020

Thanks all.

I have done a bit more reading, the original source I used was indeed dated (2018!) and the limit was £4000 at that time.

It also says the mppa is triggers by "taking flexi-acess drawdown income"

But after a bit more reading it appears that is not the same as "payments from a beneficiary’s flexi-access drawdown fund" which is presumably what I will get if I choose the drawdown option?