MPAA questions for retiree

martin2014

Hi all

Retired for 3 years now (best decision I have ever made).
Question regarding the MPAA allowance.

I cashed in some of my DC pensions to access the 25% cash and buy a fixed term annuity for the 8 years until I reach state pension age. This is working really well while my remaining pensions remain invested and continue to grow ready for me to access in 5 years. I also have a Sipp that I opened after retiring. I contribute to the sipp and get tax relief on this. My contribution is £2500 annually. I would like to increase my contribution into the sipp. Am I correct in thinking that my maximum contribution per annum is £2880 or am I able to increase contributions above this amount?
As I still have pensions invested and I bought a fixed income with the cashed in pensions have I triggered the MPAA? If I am able to add more to my sipp what would be my limit to obtain tax relief. My incomes are from the fixed annuity and interest from savings.

Many thanks

molerat

With no relevant income - which is basically income from employment - you are limited to £2880 net topped up to £3600 gross by the tax man per year.

Albermarle

You have not triggered the MPAA.

However as you have no employment earnings the maximum you can add to a pension is £3,600 ( which = £2880 from you and £720 tax relief added) .

QrizB

You have not triggered the MPAA.

OP says they bought a fixed-term annuity, which (as I understand it) means they are subject to the MPAA? (Edit: they wouldn't have if the annuity was bought using the 25% TFC, but it's not clear whether this is the case.)

I agree with everyone else about the £2880/£3600 limit in the absence of any relevant UK earnings.

SmokeysTravels

If you took 25% tax free from your DC pension and used the remaining 75% to buy a fixed term pension annuity then you have triggered the MPAA.

If you just took the 25% tax free and used that money to buy a purchased life annuity then you haven’t triggered the MPAA.

As has been pointed out above this may be a moot point if you don’t have any relevant income to make larger than the £3600 gross limit.

Marcon

https://forums.moneysavingexpert.com/discussion/comment/82074118#Comment_82074118

OP has triggered the MPAA. A fixed term annuity (as opposed to lifetime) is classed as 'flexibly accessing' a DC pot.

martin2014

Many thanks for confirming.

That is what I had assumed. I can top up to the £2880 limit to get the max tax relief allowed. What happens if I put over this amount into the sipp? Will the tax relief be capped to the maximum allowed.

Am I therefore better off adding any additional money (I have a few payments to receive) into a stocks and shares isa as I will not pay tax on any of these withdrawals.

NoMore

Unless you tell the provider the contribution is not subject to tax relief, they will automatically claim it for you, then you have to unwind it. Note lots of providers don't accept personal non tax relievable contributions for this reason.

Also you're then opening yourself up to the money having come from already taxed money being taxed again on withdrawal because you don't get the tax relief.

Just stick any spare above the £2880 in an ISA.

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/82074128#Comment_82074128

OK, I should have read the OP more carefully……

Aretnap

https://forums.moneysavingexpert.com/discussion/comment/82074150#Comment_82074150

In theory you can add more than the tax relief limit, but it is rarely a good idea. As you bite you would get no tax relief on the way in, but the money would still be taxable on withdrawal, so you would immediately be taking an effective hit on the value of your contributions. This would be offset to some extent by the fact that growth within the SIPP is still tax free, but you would need a LOT of growth for the tax savings on it to compensate for paying an effective tax rate of 15-40% (depending on income, lump sum allowance etc) when you withdraw.

And in practice as above many SIPP providers won't accept contributions which aren't eligible for tax relief anyway - it's a very niche thing to do so add needless complexity for them.

Certainly if you have unused ISA allowance you should use that before you even contemplate contributing more than £2880 pa to your SIPP.