Confusion about MPAA

greenery

I want to take a tax free lump sum from my pension now. I believed it would trigger MPAA but I am confused after reading everything my pension provider sent me!

I have not retired yet and will continue to work and make pension contributions for at least 2 more years.

I want to withdraw approx. 20% of my pension now, tax free.

My provider advised flexi access drawdown.

My understanding was that if I withdraw now, I would be able to make contributions of up to £1000 between now and April, and only £1000 each year after that. ATM my contributions are over £1000 per year

Can anyone confirm because every time I read something I get a different understanding!

MallyGirl

https://forums.moneysavingexpert.com/discussion/6685813/confusion-about-mpaa

taking just your tax free lump sum does not trigger MPAA. Taking a single penny of taxable income from a DC pension would and that would restrict contributions to £10,000

greenery

https://forums.moneysavingexpert.com/discussion/comment/82160193#Comment_82160193

Thanks MallyGirl. That's where I am confused. I am given the option of withdrawing by Flexi-access drawdown or partial pension encashment. I want it all tax free so I should go for the flexi-access option but when I read about flexi-access it says it triggers MPAA.

Should there be another option of just a single withdrawal or am I reading the flexi-access conditions wrongly.

I could ring them but I need to get it straight in my head 1st

MallyGirl

FAD only triggers MPAA when you drawdown some of the 75% taxable element. Partial pension encashment sounds more like UFPLS where you take out a chunk and 25% of the chunk is tax free and the rest is taxed (which would trigger MPAA)

Cobbler_tone

https://forums.moneysavingexpert.com/discussion/6685813/confusion-about-mpaa

I've just done exactly that with an L&G workplace pension. It took 4 days from the first request (a bit of online form filling) to money in the bank, very impressed. I moved £60k into a flexi draw down account and took £15k tax free, mirroring my current investments, although you can pick and choose. I will continue to put c£20k a year into my active pension and the £45k in drawdown will just remain invested. Very simple.

greenery

Thanks for the reply's. I think I am clear now!

Marcon

Taking a single penny of taxable income from a DC pension would and that would restrict contributions to £10,000

…unless you:

• buy an immediate lifetime annuity and the 'taxable' income comes from that; or
• you use the 'small pots' regime, in which case the MPAA is not triggered. More info: https://www.litrg.org.uk/pensions/pension-withdrawals/small-pensions

greenery

https://forums.moneysavingexpert.com/discussion/comment/82160372#Comment_82160372

I'm only taking a tax free lump, 20K, I've filled in the forms and as Cobbler_tone said, 60K is now moving to a flexible income account, and I still have a bit left in my savings account which I will continue to add to until I retire

BikingBud

How does it work when you take less than 25%?

For ease of discussion you have £100k in a fund.

You withdraw £15k to pay off debts, theoretically leaving you £85k left and 10% of tax free entitlement remaining.

The fund decreases to £60K do you still have £10k to withdraw tax free or 10% of £60k

The fund increases to achieve £110k do you now get £11k ie 10% of 110k?

Is this the crystallisation event?

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/comment/82161125#Comment_82161125

You would only have £40k from which a further (25%) could be taken as a TFLS.

It is the fluctuation in that £40k which matters, not the £45k of crystallised funds.

I think.

FatherAbraham

https://forums.moneysavingexpert.com/discussion/comment/82161125#Comment_82161125

Don't take less than 25%. Crystallisation has occurred when you moved the funds into drawdown. That £10k of unused pension-commencement lump sum cannot increase, so you need to get it out and invest it elsewhere.

The only conceivable case where you might take less than 25% would be if living in a foreign tax jurisdiction which does not recognise the tax-exemption of the lump sum, and where you had the intention to become tax-resident in the UK again in the future.