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Is it £10,000 or is it a £4000 Contribution Limit?

We are of course referring to the Money Purchase Annual Allowance (MPAA). This is the amount of tax relievable pension contribution that can be made each year by those who are drawing pension income via flexible access drawdown. It does not apply to those in capped drawdown or those who have simply accessed their tax free cash amount only.

The MPAA was first introduced in 2015 along with all the other pension reforms and flexibility and at that point it was set at £10,000 per annum. It was set lower that the annual allowance (currently £40,000 per annum) to effectively try and stop tax free cash recycling.

In Philip Hammond’s pre budget speech on the 8th March this year it was proposed that the MPAA figure be reduced to £4,000 per annum with effect from the new tax year, 6th April 2017. Whilst it is appreciated that these proposals always have to go through parliament by way of a Finance Bill and then receive Royal Assent, generally around July, things are rarely changed in this period.

It would seem, however, that the early UK general election which is scheduled to take place on the 8th June 2017 has turned things around. The current government are trying to get the finance bill through as quickly as possible and have therefore dropped a number of the proposals, which includes reference to the MPAA.. As a result technically the MPAA remains at £10,000 per annum. This does assume that the current government gets re-elected.

We would, however, encourage individuals who are or may be affected by the MPAA to exercise caution since the contribution level could still be reduced at a later date during the tax year, backdated to the 6th April. We, therefore, suggest that during this period of confusion an individual works to the lower contribution MPAA amount of £4,000 per annum.

If you feel that you may be affected by the MPAA, we would suggest that you speak with your usual financial adviser or alternatively, speak to Kerry Houghton for more information on 01772 550614 or via email Kerry.houghton@taypat.co.uk

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