The month of March is a good time to review whether you have made sufficient pension contributions in the tax year, and to check whether you are in danger of exceeding your annual pension contributions allowance which would lead to a pension contributions tax charge.
Your annual allowance is normally set at £40,000, expanded by any unused annual allowance from the previous three tax years. However, a lower money purchase annual allowance (MPAA) of £4,000 may apply if you have accessed your pension savings from a defined contribution (money purchase) pension scheme.
The MPAA does not apply if you took your benefits as: • a small pot lump sum; • a pension commencement lump sum where no pension income was taken; or • income from a capped drawdown arrangement.
The MPAA is not expanded by unused annual allowance from earlier years and once the lower level of allowance is in place it cannot be removed. The MPAA was reduced from £10,000 to £4,000 on 6 April 2017, increasing the risk of exceeding the allowance in 2017-18 and later years. We can help you clarify whether you need to pay a pensions tax charge in respect of your pension contributions.
