Money purchase annual allowance

By Tolley
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The following Personal Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Money purchase annual allowance
  • Introduction
  • The money purchase annual allowance
  • Triggering the money purchase annual allowance
  • Tapering of the money purchase annual allowance

Introduction

As discussed in the Annual allowance guidance note, the annual allowance in relation to registered pension schemes is the maximum amount:

  • by which a member’s benefits can increase in a pension input period (for defined benefit schemes), plus
  • that can be contributed to pension arrangements in a pension input period (for defined contribution or money purchase schemes)

The total of these figures is the pension input amount.

If the pension input amount exceeds the annual allowance (£40,000 from the 2014/15 tax year onwards), there is a tax charge on the excess (known as the annual allowance charge) on the member.

The purpose of the annual allowance is to set a limit on the extent to which people are able to accumulate additional tax privileged pension funds each year.

In order to reduce the risk of funds being recycled as a consequence of the introduction of the more flexible benefits regime with effect from 6 April 2015, a new form of annual allowance was introduced for those who decide to take benefit in the form of flexi-access drawdown.

The money purchase annual allowance (MPAA) is designed to ensure that individuals do not exploit the new system to gain unintended tax advantages.

The money purchase annual allowance

The MPAA rules were introduced to ensure that individuals do not use pensions flexibility (which is intended to provide people with greater access to their retirement savings) to double up on tax-relieved pensions savings. Without the MPAA limiting new cont

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