Important Update - Changes to the Money Purchase Annual Allowance
We recently communicated changes to the Money Purchase Annual Allowance (MPAA). The MPAA is the maximum amount you can contribute in a tax year to any defined contribution pension (which includes a SIPP) and receive tax relief, if you have flexibly accessed any pension through flexi-access drawdown or an uncrystallised funds pension lump sum.
Earlier this year, the Government, as part of the initial Finance (No.2) Bill 2017, looked to reduce the MPAA from £10,000 to £4,000. However, following the announcement of the snap general election, a number of measures in the Finance (No.2) Bill 2017 were dropped to expedite the bill through Parliament before the election. That left the MPAA at £10,000.
On 13 July 2017, the Government confirmed that a second Finance Bill 2017 will be put forward that reintroduces all the excluded policies, including the reduction in the MPAA from £10,000 to £4,000. Importantly, the Government have stated that they intend for the reduction to apply retrospectively back to April 2017.
So the MPAA remains £10,000 until the second Finance Bill 2017 passes through Parliament. However, the reduction applying retrospectively effectively reduces the MPAA to £4,000 with immediate effect. If you are subject to the MPAA and have, or plan to contribute over £4,000 to any defined contribution pension in the 2017/18 tax year, you will have a retrospective tax charge imposed.
Of course legislation can be amended as it passes through Parliament, so until this new Finance Bill 2017 becomes law, it is possible that this may change. We therefore suggest you keep any eye on the financial press and our website for further information in the coming months.
What does this mean for me if I am impacted by the MPAA?
If you are subject to the MPAA and have or are thinking of paying over £4,000 in to any defined contribution (also called money purchase) scheme, we strongly recommend you that you talk to a regulated financial adviser.
If you do not have a financial adviser but would like to speak to one, please visit www.unbiased.co.uk or call 0800 023 6868 to obtain a list of financial advisers in your local area.