Reduction In The Money Purchase Annual Allowance

In the Budget 2017, the Chancellor confirmed that, following the consultation on the reduction in the MPAA, the government has seen no grounds to change its view on reducing the MPAA from £10,000 to £4,000. A government response to the consultation was published on 20 March 2017, confirming that the level of the MPAA will therefore be set at £4,000 with effect from 6th April 2017.

In view of the reduction, are there any specific actions that those that have already triggered the MPAA should take?

The short answer is, not really. Once the MPAA is triggered, the ability to carry forward any unused relief is lost so although there is no direct action to take in relation to the reduction, you should use up the £10,000 allowance, or lose it.

What becomes even more important is being aware of the triggers for the MPAA and remembering that, once it has been triggered, there is no getting the annual allowance back for money purchase schemes.

As a reminder, the triggers are:

• Income from flexi access drawdown – just taking PCLS will not trigger the MPAA.
• UFPLS
• Exceeding permitted maximum for capped drawdown/conversion to flexi access with income payable
• Scheme pension payable from a scheme will less than 12 pensioners
• Flexible annuity (the amount payable can reduce)
• Stand alone lump sums
• Payments from an overseas pension scheme of income described above eg flexi access drawdown that has benefited from UK tax relief.

Before taking a UFPLS/drawdown of £10,000 or less, it’s worth investigating to see if small pot commutation can be used instead. A small pot commutation is not a BCE and is not a trigger for the MPAA.