Pensions/drawdown etc

[Wary]

You can only do that three times and each time it is limited to £10,000. As per normal drawdown, £25% of it is tax free with the rest taxed at your marginal income tax rate.

My understanding is that making a such a withdrawal (i.e. making use of the small pots rule) will not trigger one's MPAA. Hence the advantage of doing so.

[rootsnall]

OK. Say for the sake of argument I've got 3 old pensions, 1 SIPP with nothing going in, and one active pension with loads going it. Can I take 25% out of each?

For the SIPP, nothing else is ever likely to go in there. Can I take more than 25% or are we getting into the territory of paying tax then? Since I'm still working....

Merge them into the active one, or the cheapest one. It's pretty easy ( and quick ). It will probably save you fees now and down the track when it comes to drawdown. One thing to be aware of if you've got a bob or two is that anything inside your pension isn't part of your estate for IHT, once you draw it out then it is.

[Fred Bloggs]

My understanding is that making a such a withdrawal (i.e. making use of the small pots rule) will not trigger one's MPAA. Hence the advantage of doing so.

Correct, with the caveat that you can do it three times and only upto £10000 each time.

[Fred Bloggs]

I cannot find anything that points to the 25% trigger for MPAA.
I'm sure you're right but where do I find it?

Here is a good explanation. Note that the trigger for MPAA is taking an income. Drawing the 25 per cent tax free sum and no more, you are not taking an income.

The MPAA won’t normally be triggered if:

You take a tax-free cash lump sum and buy a lifetime annuity that provides a guaranteed income for life that either stays level or increases
You take a tax-free cash lump sum and put your pension pot into a flexi-access drawdown scheme but don’t take any income from it
You cash in small pension pots valued at less than £10,000

Money Purchase Annual Allowance (MPAA) - Money Advice Service

[Lance]

Here is a good explanation. Note that the trigger for MPAA is taking an income. Drawing the 25 per cent tax free sum and no more, you are not taking an income.



Money Purchase Annual Allowance (MPAA) - Money Advice Service

I read that but it says ‘draw a lump sum AND buy an annuity’.

[Fred Bloggs]

I read that but it says ‘draw a lump sum AND buy an annuity’.

There's three separate conditions there. None of them trigger MPAA. You just quoted the first one. The third one, as someone else mentioned, is a small pot withdrawal. The second condition is the one that answers your point.

You take a tax-free cash lump sum and put your pension pot into a flexi-access drawdown scheme but don’t take any income from it.

[Lance]

There's three separate conditions there. None of them trigger MPAA. You just quoted the first one. The third one, as someone else mentioned, is a small pot withdrawal. The second condition is the one that answers your point.

Dunno if I'm being thick here. Or not explaining very well.

You take a tax-free cash lump sum and put your pension pot into a flexi-access drawdown scheme but don’t take any income from it

My assumption is that I can take 25% of the entire pot and spend it on cocaine and hookers. Will that trigger MPAA? None of the options to NOT trigger MPAA cover just spending the lump sum.
I would probably not want an annuity, or a flexi-access drawdown scheme (whatever that is).

I have spent a lot of time and effort maximising the pension pot, but quite a lot less on getting it out again.

[Fred Bloggs]

Dunno if I'm being thick here. Or not explaining very well.


My assumption is that I can take 25% of the entire pot and spend it on cocaine and hookers. Will that trigger MPAA? None of the options to NOT trigger MPAA cover just spending the lump sum.
I would probably not want an annuity, or a flexi-access drawdown scheme (whatever that is).

I have spent a lot of time and effort maximising the pension pot, but quite a lot less on getting it out again.

Drawing the 25 per cent tax free does not trigger MPAA. Spend it on cocaine, hookers or daffodils. No difference.

Draw down even 1p in income after taking the 25 per cent and you trigger the MPAA.

[Lance]

Drawing the 25 per cent tax free does not trigger MPAA. Spend it on cocaine, hookers or daffodils. No difference.

Draw down even 1p in income after taking the 25 per cent and you trigger the MPAA.

that's what I thought but all the guides fail to mention it as such.


hmmm.. daffodils.......

[Wary]

For every £1000 of your tax-free element you withdraw, £3000 is moved to a crystallised pot (this is the 75% taxable element). You can withdraw from the latter at any point (you don't have to withdraw the full 25% tax-free first), but it will be liable to tax and will trigger your MPAA (unless it is classified as a "small pot").

Note that you may need to move your current SIPPs into a drawdown account first, before you can commence drawdown withdrawals.