What triggers the money purchase annual allowance (MPAA)?

by Alexander Beard, on Nov 21, 2018 2:10:01 PM

Introduced on 6 April 2015, the MPAA is an allowance for those making pension contributions whilst also accessing pension benefits flexibly. It’s purpose is to restrict the extent to which pension savers can benefit from a second round of tax relief – i.e. by limiting the amount they can withdraw and then re-invest in the pension scheme.

The allowance was introduced at £10,00, before reducing to £4,000 from 6 April 2017, but the rules are complicated and it is not always clear what can trigger it.

The following trigger the MPAA (either from a UK registered pension plan or from an overseas scheme that has had UK tax relief):

  • Taking income from a flexi-access drawdown (FAD) plan (includes short term annuity purchase).
  • Taking an uncrystallised funds pension lump sum (UFPLS).
  • Converting capped drawdown to FAD and then drawing some income.
  • Taking more than 150% GAD from a capped drawdown plan.
  • Receiving a stand-alone lump sum when entitled to primary protection and TFC protection is more than £375k.
  • Receiving a payment from a flexible lifetime annuity (one where payments can decrease).
  • Receiving a scheme pension from a DC arrangement where it’s being paid directly from those DC funds to less than 11 other members.

In addition, anyone in flexible drawdown before 6 April 2015 is subject to the MPAA from this date, irrespective of whether they’ve taken an income withdrawal before then.

These triggers relate to a member, and their own funds, and don’t apply where benefits are being paid to a dependant/beneficiary (for example where a beneficiary receives a FAD income payment from a dependant’s/ nominee’s/successor’s FAD arrangement, this isn’t a trigger).

Events that won’t trigger MPAA

  • Taking only the tax-free cash and placing the balance in FAD (until such time as any income is withdrawn).
  • Taking a trivial commutation or small pots lump sum.
  • Receiving a scheme pension from a DB scheme (for example pensions from final salary schemes).
  • Receiving payments from a conventional lifetime annuity (that can’t decrease other than in permitted circumstances).
  • Taking no more than 150% GAD from a capped drawdown plan.
  • Receiving a scheme pension paid directly from the funds of a DC pension where at least 11 other members are in receipt of a scheme pension.
  • Receiving a scheme pension secured by way of an annuity (regardless of the number of other members in receipt).

Article taken from ‘roundup from ThreeSixty’ Autumn 2018 https://publications.threesixtyservices.co.uk/roundup/autumn2018/