Triggered Money Purchase Annual Allowance

Oublier24

Hi, opinions/sense check please!

I have triggered the MPAA, therefore, I can only pay in £10K instead of £60K to my D.C. pension without incurring a tax charge. I am a higher rate tax payer, 61 years old and still employed.

I believe the lesser of the two evils is to keep paying into the pension & just suck up the tax charge because:-

Salary sacrifice money into my pension is free of income tax & NI.

If I paid in less the growth of the pot would be smaller.

By using salary sacrifice I stay under £100K of earnings, which preserves my personal tax allowance & avoids the 60% trap.

Have I missed anything?

Many thanks.

Exodi

Oublier24

Salary sacrifice money into my pension is free of income tax & NI.

Regarding income tax, only on the way in - you will still need to pay income tax on it on the way out. I note you are a higher rate tax payer currently, what is your projected tax bracket in retirement?

Oublier24

If I paid in less the growth of the pot would be smaller.

But the money doesn't disappear if you don't put it in your pension, you could just put it in a S&S ISA where you can invest in the same sort of funds - meaning your overall position doesn't necessarily change.

Oublier24

Have I missed anything?

I'm certainly no expert, but I was under the impression the MPAA tax charge was at your nominal rate on any excess, so in your case, at the higher rate. If so, this means your plan is ruinous as you'd be getting taxed twice - paying 40% tax on the way in AND 20-40% tax on the way out as you draw it down in retirement.

You may want to consider putting money in your pension up to the MPAA and then any excess in a S&S ISA.

Isthisforreal99

The question is why did you trigger it? You have a high income and still looking to salary sacrfice so can't have been desperate for it.

With the NIC savings being restricted from 2029 you need a rethink.

Albermarle

The MPAA £10K limit, includes your employer contributions.

Now I know with salary sacrifice your pension only receives contributions from your employer, but that contribution will be bigger than yours, as they will have added X% of your salary as well.

jaybeetoo

You could put money over £10k pa (including your employer contribution) into a S&S ISA. I have roughly an equal amount in my SIPP (which is in drawdown) and my ISA (which I’m taking an income from dividends). I pay tax on my SIPP drawdown but my ISA income is completely tax free. Now that a pension is included for inheritance tax, one big advantage of pensions has been taken away.

DRS1

I believe the OP's thinking here is that he could save 60% on the amount sacrificed and only pay 40% on the amount subject to the AA charge. So he still saves 20%.

Does anyone know if that is how the AA charge works? Or is the excess amount simply added back to your taxable income and tax charged accordingly - ie could the charge be at 60%?

Marcon

The question is why did you trigger it? You have a high income and still looking to salary sacrfice so can't have been desperate for it.

Bit late to ask that. OP must be kicking themself, so labouring the point isn't going to serve any useful pupose.

I believe the OP's thinking here is that he could save 60% on the amount sacrificed and only pay 40% on the amount subject to the AA charge. So he still saves 20%.

Given OP has substantial earnings (and savings - looking at a previous post, there's a decent DB pension as well), getting some proper (paid for) financial advice from someone who has all the facts and is insured to give the answers would be a better bet than relying on random strangers speculating on what OP might or might not mean/know/intend. Who knows what alternative strategies might work for OP and possibly the wider family?

Triumph13

Completely agree with Marcon that OP really needs to seek professional advice, if only to stop them making things worse. Their latest cunning plan appears to just be volunteering to be taxed twice.