Warning - this is complex but very important.
In order to stop people abusing some of the Pension Freedoms rules, the Government introduced a new rule to reduce the amount of money you can pay into your pension pot tax efficiently if you have taken cash or income from your pension in certain ways.
Normally you can get tax relief on pension contributions up to £40,000 a year or 100% of your taxable salary.
But if you take cash or income from your pension in the following ways you will be only be allowed to pay £ 4,000 per annum into your money purchase pension plans before you get hit by an extra tax charge.
|You will trigger the MPAA if you
|You will not trigger the MPAA if you
If you are subject to the MPAA, you will get a tax charge on any pension contributions to money purchase pensions which exceed the MPAA in a tax year. This is based on both contributions made by you, and on your behalf e.g. your employer.
If you want to take a cash sum of more than £10,000, (for example £ 15,000) see if you can take more than one payments becuase a cash sum of less than £10,000 will not trigger the MPAA.
For instance, two seperate payments of £7,500 will not trigger the MPAA. This will only work if your pension provider will allow this.