Pensioner looking to return to work to pay soaring bills
We use your sign-up to provide content in ways you’ve consented to and to improve our understanding of you. This may include adverts from us and 3rd parties based on our understanding. You can unsubscribe at any time. More info
The Money Purchase Annual Allowance (MPAA) places a restriction on the amount people can pay into their pension and still receive tax relief. It is triggered when a person withdraws income from their pension scheme, not including any tax-free lump sums to which they are entitled.
It means the amount of contributions saved in a pension scheme before incurring a tax charge drops rapidly.
Instead of the £40,000 standard annual allowance, triggering the MPAA means individuals can only save £4,000 each tax year.
It represents a 90 percent drop in the retirement savings potential of Britons, which could be devastating.
It will also no longer be possible for individuals to carry forward their unused allowances from a previous tax year.
As there is no going back once the MPAA has been triggered, it could be frustrating for those who hoped to boost their retirement income substantially.
The MPAA could be brought to bear on more people during the cost of living crisis.
As people struggle to make ends meet, they could turn to their pension to withdraw an extra bit of cash.
However, many may not even realise the potential consequences of doing so, and thus stunt their retirement growth in the process.
Those who trigger the MPAA will have the responsibility of informing their pension provider within 91 days.
A failure to do so, or to follow pension saving rules could mean a £300 fine.
The MPAA is not triggered in all instances, and it will not be set off if:
- A person takes up to 25 percent of their pension as a tax-free lump sum
- A person receives benefits from a defined benefit pension scheme
- A person takes their tax-free lump sum to purchase a lifetime annuity.
In addition, a person will not trigger the MPAA if they cash in pension pots with a value of less than £10,000.
What is happening where you live? Find out by adding your postcode or visit InYourArea
If the MPAA has been triggered, it is possible for Britons to pay in contributions above the £4,000 limit.
However, they should be aware these will be subject to a tax charge.
This also applies to contributions made by a person’s employer or another third party – with the tax payable by the pension saver.
The Government-backed website MoneyHelper has explored one potential alternative for those who have triggered the MPAA.
It states: “Do you have a defined benefit pension that you’re still making contributions to? Then an alternative allowance might still be available to you, up to £36,000 each tax year.”
Alternatively, Britons can look towards other savings vehicles such as ISAs, which are tax-free, to help them continue saving towards their retirement goals.
As with all pension decision-making, the matter can often become complex especially as it relates to tax.
As a result, individuals are encouraged to speak to their pension provider or an independent, regulated financial adviser for further guidance.
Source: Read Full Article