Question for pension expert...MPAA and drawdown

[Chuggaboom]

I understand the MPAA is (currently) 40K a year, but if you receive money from a pension that is then reduced to (currently) 4K per year.

Q:

Is this a one off....as in once you have received any money from any pension in year X does the 4K apply thereafter for all subsequent years ?

Or if you don't receive any pension money in a subsequent year, does your MPAA revert to the full amount in that and any other years if no pension money is received in those years as well ?

And is this the same before / after normal retirement age ?

[PurpleMoonlight]

If you 'flexibly access' any pension (not tax free cash) then the MPAA kicks in for the tax year the pension is drawn and for ever thereafter regardless of future pension drawings.

[Jockman]

Oh and you cannot use carry forward to top it up.

[Ginge R]

Chuggaboom said:

I understand the MPAA is (currently) 40K a year, but if you receive money from a pension that is then reduced to (currently) 4K per year.

Q:

Is this a one off....as in once you have received any money from any pension in year X does the 4K apply thereafter for all subsequent years ?

Or if you don't receive any pension money in a subsequent year, does your MPAA revert to the full amount in that and any other years if no pension money is received in those years as well ?

And is this the same before / after normal retirement age ?

The only thing I’d add, is, MPAA doesn’t apply if you’re taking a small amount (trivial commutation lump sum or small pots commutation lump sum) from your pension, if the ceding scheme is a defined benefit one or if you’re the beneficiary in a flexible-drawdown arrangement, if you’re taking tax free cash (pcls), if you’re taking income from an existing (pre April 2015) capped drawdown arrangement (which is within the GAD limit), or if you’re using the drawn funds to buy a lifetime annuity.

[Chuggaboom]

PurpleMoonlight said:

If you 'flexibly access' any pension (not tax free cash) then the MPAA kicks in for the tax year the pension is drawn and for ever thereafter regardless of future pension drawings.

So are we saying that if I was 55 and the pot was 500K, using simple figures to keep the maths easy, I could take 100K tax free over 10 years avoiding income tax, but if I was to work during those 10 years, I could still make use of the 40K MPAA ???

[PurpleMoonlight]

Chuggaboom said:

PurpleMoonlight said:

If you 'flexibly access' any pension (not tax free cash) then the MPAA kicks in for the tax year the pension is drawn and for ever thereafter regardless of future pension drawings.

So are we saying that if I was 55 and the pot was 500K, using simple figures to keep the maths easy, I could take 100K tax free over 10 years avoiding income tax, but if I was to work during those 10 years, I could still make use of the 40K MPAA ???

No, not in the slightest.

Only 25% of the £500,000 can be taken tax free, the balance would be taken as pension and subject to income tax assessment under PAYE.

It is the drawing of the pension element that triggers the MPAA, but you are not obliged to do so and can take the tax free cash in isolation and not trigger the MPAA. You can spread the taking of the tax free cash over a number of years if you wish.

You need a pension arrangement that facilitates this, not all do.

[Chuggaboom]

Er....25% of the 500K pot is 125, therefore in my example the 100K spread over 10 years ie 10K per year is under the thresholds on both counts.

[PurpleMoonlight]

Chuggaboom said:

Er....25% of the 500K pot is 125, therefore in my example the 100K spread over 10 years ie 10K per year is under the thresholds on both counts.

Sorry my misunderstanding.

You can receive 25% tax free for each crystallisation, so yes you can crystalise £40,000 for each of 10 years and providing you don't access any pension from the crystallised funds the MPAA will not apply.