MPAA: Almost a Slip Up…

A client approaching his 60th birthday emailed me.

An insurance company had contacted him about an old personal pension he’d completely forgotten about.

He’s been a client for many years and has a substantial SSAS (Small Self Administered pension Scheme). He’s taken some tax free cash but not yet drawn any income yet. That’s because he’s a business owner and his company is still paying maximum pension contributions for him each year.

The personal pension was valued at just over £11,000. He thought it too small to bother transferring to his SSAS. Instead he was thinking of taking the whole of the fund as a cash sum. He’d pay income tax on the balance over the 25% tax free lump sum.

Fortunately, he contacted me to check it was the right thing to do in his circumstances.

The problem, I explained, was that his fund was over £10,000. And that if he takes it all as he was proposing the Money Purchase Annual Allowance (MPAA) will apply to him.

The MPAA restricts pension contributions on which he’ll get tax relief each year from £40,000 to £4,000.

As his plan is to continue to use his company profits to fund his pension to the maximum as part of his business exit strategy this wasn’t the best idea.

So instead we arranged to transfer the small pension fund into his SSAS so he could take just the lump sum and leave the income for later.

Comment: if the pension fund had been larger or in a more flexible pension plan, rather than transferring my client could have set up the tax free lump sum with the existing provider and left the balance of the fund as deferred flexi drawdown income.

If you’re in similar situation and would like some help, why not book a call to chat it through?

Fill in the contact form, or call us on 0117 290 0370

Click here for more information on the Annual Allowance

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Risk Warnings

This article and the information on this website is not personal advice. It’s only intended to give you a brief summary or highlight a particular issue for you to investigate further. It is based on our current understanding of legislation and HMRC guidance which can change and is correct as of the date of the post.

If you’re in any doubt whether a particular course of action is suitable for your circumstances, you should seek professional advice. Tax rules can change and any benefits depend on individual circumstances. And, if you are unsure any reliefs are applicable to you, you should consult your accountant or HMRC.

The value of investments and any income from them can fall as well as rise, so you could get back less that you put in. Past performance is not a guide to the future. It cannot provide a guarantee of the future returns of a fund.

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