Latest news with #ClareMoffat
Telegraph
18-05-2025
- Business
- Telegraph
Money Purchase Annual Allowance: What is the MPAA and what does it mean for your pension?
If you want to dip into your pension before you've stopped saving or really retired, it's important that you are aware of the Money Purchase Annual Allowance (MPAA) and the impact it will have on your future contributions. Here, Telegraph Money explains what the MPAA is and how it could restrict your ability to grow your pension as retirement approaches. What is the money purchase annual allowance? How does the money purchase annual allowance work? What triggers the money purchase annual allowance? Pension allowance vs MPAA Why it's important to think about the MPAA Managing your pension after triggering the MPAA FAQs What is the money purchase annual allowance? Each year, it's possible to pay 100pc of your earnings, up to £60,000 a year, into your pension and get tax relief on your contributions. However, once you have made a taxable withdrawal from your pension, this allowance is slashed to just £10,000 a year. Clare Moffat, pensions and tax expert at Royal London, explains: 'Since the introduction of 'Pension Freedoms' a decade ago, pension savers have been able to take as much or as little as they want out of their pensions from age 55, instead of buying an annuity. 'To prevent people from repeatedly taking money out, benefiting from tax-free cash, and putting money back in again with the benefit of tax relief, HMRC introduced a limit on the amount people could invest back in to pensions once they had started drawing taxable cash. This is called the Money Purchase Annual Allowance (MPAA).' How does the money purchase annual allowance work? The MPAA limits the amount that you can pay into your pension and still get tax relief on your contributions, once you have made a taxable withdrawal from a defined contribution pension (also known as money purchase schemes). Charlene Young, senior pensions and savings expert at AJ Bell, says: 'The MPAA is now set at £10,000 per tax year and once triggered it applies to all money paid into money purchase pensions – which include Sipps and personal pensions, but not defined benefit schemes. 'The reduced allowance covers your total pension savings in these pensions for a year – that's your personal contributions, including tax relief, plus those by your employer or anyone else.' She adds: 'Anything above £10,000 is taxed at your marginal rate – meaning it is added to your other income for the year to work how much tax you'll pay. If you trigger the MPAA part way through a tax year, anything paid in before this date is not caught. But once triggered, you'll be unable to carry forward unused allowance from previous years to increase the £10,000 allowance for your money purchase pensions.' Non-earners, those with incomes below the personal allowance, are limited to contributing £2,880 a year – which will be boosted to £3,600 once basic rate tax relief has been applied. Your pension provider will tell you if you are making a withdrawal that triggers the MPAA and, if you proceed, you will get written confirmation within 31 days. Once triggered, the MPAA is permanent – you cannot revert to the standard pension allowance in future tax years. What triggers the money purchase annual allowance? Andrew King, of wealth manager Evelyn Partners, says the MPAA will kick in when you access your pension 'flexibly'. This includes the following scenarios: Taking an uncrystallised fund pension lump sum or a standalone lump sum (not tax-free cash) Taking an income payment from most drawdown plans set up after April 5, 2015 Receiving an income from a flexible annuity (a fixed-term annuity that pays out for a specific period like five or 10 years) Receiving an income payment from a small scheme pension with 12 members or fewer Taking an income payment from a drawdown payment that was converted to flexible drawdown after April 5, 2015 Having flexible drawdown before April 6, 2015 Exceeding the income limits from a capped drawdown plan set up before April 6, 2015 What won't trigger the MPAA? Mr King adds that the following circumstances wouldn't trigger the MPAA: Taking income from a defined benefit or final salary pension Taking a pension arrangement as a small lump sum due to it being worth less than £10,000 Taking income from capped drawdown set up before April 6, 2015, which remains within capped drawdown limits Taking tax-free cash only and no income Taking a pension as an annuity Pension allowance vs MPAA Pension allowance The maximum you can pay into a pension is usually 100pc of earnings up to £60,000 a year The pension allowance ceases to apply once a flexible withdrawal has been made 'Carry forward' rules allow you to used unused allowance from the previous three years MPAA The maximum you can pay into a pension is £10,000 a year It's usually triggered once you have made a taxable withdrawal from your pension You can no longer take advantage of carry forward rules once you have triggered the MPAA. Why it's important to think about the MPAA According to research from Royal London, around one-third of people between the ages of 55 and 64 have accessed their pensions flexibly and triggered the MPAA. But Moffat warns savers to think about the impact triggering the MPAA will have on your ability to keep paying into your pension. She says: 'The changing shape of retirement means workers are now less likely to have a hard stop to the world of work, preferring to transition gradually into retirement. This makes the MPAA an important consideration for nearly half of workers planning to gradually retire by reducing their working hours, making it likely that many will come up against the MPAA if they want to start paying more into pensions again.' However, she says that there are ways to avoid triggering the MPAA and protect your full pension allowance. 'If you are still working but you want to go on holiday or make a bigger purchase, like a new kitchen or car, then taking a small pot which is less than £10,000 – or only taking tax free cash and moving the rest into drawdown – means that you won't trigger the MPAA. 'For many people, their 50s are the point that they are earning the most and able to pay more into pensions, so triggering the MPAA could limit pension contributions and that could mean that you might not have the retirement that you planned.' Managing your pension after triggering the MPAA Mr King says that once you have triggered the MPAA, you will need to take care to ensure that you do not contribute more than £10,000 a year into your pension. 'This could be problematic if you have retired early, taken your pension and then triggered the MPAA, and then you return to work in a high paying job, which comes with a salary and pension contributions which exceed £10,000 per annum. In this instance, you would have to tell your new employer to cap total contributions at £10,000 or face the tax charge.' Your pension provider will tell you when you make a withdrawal that triggers the MPAA. However, it will be your responsibility to inform other pension providers you have pots with and any new providers. FAQs What happens if you exceed the MPAA? If you exceed the MPAA you will not get the benefit of tax relief on that money – instead it would be added to your income for the year and taxed at your highest rate. You will normally need to complete a tax return to declare and pay the charge. How do I find out if went above the MPAA? If you aren't sure how much has been paid into your defined contribution pensions during the tax year, you can contact each of your providers. If the total – including employer contributions and tax relief – exceed the MPAA, you will need to pay a tax charge. There is also a calculator on the government website that can help you work out if you have a tax charge. If you are taking money out of a small pension – worth £10,000 – or less, you won't trigger the MPAA. This means that if you want to take money out of a pension, while you are still contributing, it's worth turning to any small pots you might have first.
The Sun
17-05-2025
- Business
- The Sun
The £1 pension trick that could save you thousands on your tax bill
A CLEVER £1 pension trick could stop you from losing thousands in emergency tax when withdrawing from your pension. Across the UK, many over-55s are at risk of overpaying tax when they take out lump sums from their pensions. 2 In just the first three months of 2025, pensioners reclaimed a staggering £44 million in overpaid tax, according to HMRC. That's an average of nearly £3,000 per person. This happens because when people take out money from their pension for the first time, HMRC doesn't always have an accurate tax code for them. So instead, it applies an emergency tax, assuming the amount withdrawn will be repeated every month for the rest of the year. The result? You can end up paying much more tax than you actually owe. For example, someone taking out £20,000 might be taxed over £7,000, when they should really only pay around £1,500. The extra money can be claimed back, but it often takes months and requires filling in complicated forms. That's where the £1 pension trick comes in. By withdrawing a small amount first, as little as £1 in some cases – HMRC is prompted to issue an up-to-date tax code. Once that code is in place, any further withdrawals are taxed correctly from the start. Pensions expert Clare Moffat, from Royal London, told the Express that the exact amount needed varies depending on the pension provider. 'It could be £1, £50 or £100 – but the idea is to make a small withdrawal first to get a tax code sorted before taking a large sum,' she said. Some providers allow £1 withdrawals online, but others may require a paper form. It's worth checking in advance to avoid delays or confusion. David Gibb, a chartered financial planner, warned that this emergency tax is down to a glitch in the PAYE system. 'It's a hangover from how regular wages are taxed. "But for one-off pension withdrawals, it doesn't make sense – and savers lose out.' The trick isn't perfect. In some cases, even with a tax code, emergency tax may still be applied. But it can significantly reduce how much you overpay and the stress of claiming it back later. If you're planning to take out a lump sum for a big purchase, like a new kitchen, home repairs or a holiday, knowing this trick could keep more cash in your pocket. However, experts also warn to think carefully before dipping into your pension early. Withdrawing taxable income could reduce your pension pot and even trigger the Money Purchase Annual Allowance (MPAA), limiting how much you can pay back in later, from £60,000 a year to just £10,000. This could be a big deal for people in their 50s and early 60s who are still working and putting money into their pensions. It's also important to remember that once you take money from your pension, it may affect other benefits or entitlements, so it's worth getting advice. 2
Scottish Sun
17-05-2025
- Business
- Scottish Sun
The £1 pension trick that could save you thousands on your tax bill
Some savers have been hit CASHING IN The £1 pension trick that could save you thousands on your tax bill Click to share on X/Twitter (Opens in new window) Click to share on Facebook (Opens in new window) A CLEVER £1 pension trick could stop you from losing thousands in emergency tax when withdrawing from your pension. Across the UK, many over-55s are at risk of overpaying tax when they take out lump sums from their pensions. Sign up for Scottish Sun newsletter Sign up 2 Some providers allow £1 withdrawals online, but others may require a paper form Credit: Getty In just the first three months of 2025, pensioners reclaimed a staggering £44 million in overpaid tax, according to HMRC. That's an average of nearly £3,000 per person. This happens because when people take out money from their pension for the first time, HMRC doesn't always have an accurate tax code for them. So instead, it applies an emergency tax, assuming the amount withdrawn will be repeated every month for the rest of the year. The result? You can end up paying much more tax than you actually owe. For example, someone taking out £20,000 might be taxed over £7,000, when they should really only pay around £1,500. The extra money can be claimed back, but it often takes months and requires filling in complicated forms. That's where the £1 pension trick comes in. By withdrawing a small amount first, as little as £1 in some cases – HMRC is prompted to issue an up-to-date tax code. Once that code is in place, any further withdrawals are taxed correctly from the start. Pensions expert Clare Moffat, from Royal London, told the Express that the exact amount needed varies depending on the pension provider. 'It could be £1, £50 or £100 – but the idea is to make a small withdrawal first to get a tax code sorted before taking a large sum,' she said. Some providers allow £1 withdrawals online, but others may require a paper form. It's worth checking in advance to avoid delays or confusion. David Gibb, a chartered financial planner, warned that this emergency tax is down to a glitch in the PAYE system. 'It's a hangover from how regular wages are taxed. "But for one-off pension withdrawals, it doesn't make sense – and savers lose out.' The trick isn't perfect. In some cases, even with a tax code, emergency tax may still be applied. But it can significantly reduce how much you overpay and the stress of claiming it back later. If you're planning to take out a lump sum for a big purchase, like a new kitchen, home repairs or a holiday, knowing this trick could keep more cash in your pocket. However, experts also warn to think carefully before dipping into your pension early. Withdrawing taxable income could reduce your pension pot and even trigger the Money Purchase Annual Allowance (MPAA), limiting how much you can pay back in later, from £60,000 a year to just £10,000. This could be a big deal for people in their 50s and early 60s who are still working and putting money into their pensions. It's also important to remember that once you take money from your pension, it may affect other benefits or entitlements, so it's worth getting advice.
Metro
17-05-2025
- Business
- Metro
The £1 pension trick that could save you losing thousands to emergency tax
Those looking to withdraw from their pension but avoid pesky emergency taxes could have a new method to avoid superfluous charges. Since January, an estimated £44,000,000 has been reclaimed by pensioners withdrawing money from HMRC. But for some who need to make larger withdrawals, an emergency tax is charged and can take a lengthy amount of time to get back. To avoid this, an expert has revealed a unique way you could avoid a hefty tax on a withdrawal, dubbed a '£1 pension hack'. When you make a large withdrawal from your pension, it's not seen as normal by HMRC – so they place an emergency tax on it. Those above 55 are currently able to make flexible withdrawals from their pension – the first 25% of withdrawals are tax-free, but anything over that is taxed at the highest rate. How can you avoid this tax? Pensions expert Clare Moffat explained that you could avoid this by taking a smaller amount out of your pension to get a tax code generated, then, withdraw the amount you actually need to avoid the emergency tax. This method is called '£1 pension hack' because the small amount you initially withdraw could be as little as just a pound. But Ms Moffat added: 'How much you would need to take out would depend on your provider, so you need to check with them first. 'But even if you can't take £1 out, taking out £100 may still be enough to generate a tax code from HMRC that the provider can apply.' Though the trick does work, you may have to submit a tax reclaim form if you are still taxed a high amount – which can be reclaimed later if needed. Last year, it was revealed that the UK trails behind much of Europe when it comes to the generosity of our pensions, compared to the salaries pensioners made while they were working. Statistics show Brits make an average of 54.4% of what they earned as a worker once they start withdrawing their pension. More Trending By contrast, pensioners in Portugal make close to 100% of their previous earnings, according to research from the OECD, and the EU average is 68.1%. The OECD's statistics show that the UK pension 'replacement rate' – meaning the percentage of an average working salary that a person can expect to receive as a pension – is roughly similar to that of Norway and Germany. People from Turkey, the Netherlands and Greece could expect to receive 90% or more of their previous earnings when they take out their pension. Want to see how your pension compares to the rest of Europe? Take a look here. Get in touch with our news team by emailing us at webnews@ For more stories like this, check our news page. MORE: Thousands of households could get up to £500 in cost of living support – check if you qualify MORE: The 'unusual' way you can build your credit score as a renter — and make your money work harder MORE: What the wealthy do differently with their money — and how you can do it too
Scottish Sun
08-05-2025
- Business
- Scottish Sun
Millions of workers missing out on pay rise worth £1,000s – the five checks you should do now
One of the tricks boosts your health as well as bank account WORK PERK Millions of workers missing out on pay rise worth £1,000s – the five checks you should do now Click to share on X/Twitter (Opens in new window) Click to share on Facebook (Opens in new window) MILLIONS of workers are missing out on a pay rise worth £1,000s by not making the most of their salaries and staff perks. Wages have stagnated in the UK since the 2008 financial crisis with pay lagging behind the cost of living. Sign up for Scottish Sun newsletter Sign up 1 Make the most of work perks and salaries and earn thousands of pounds more Credit: Getty But there are a host of ways to make the most of your earnings or any company benefits and make life financially easier. Sarah Coles, personal finance analyst at Hargreaves Lansdown, said: "When you consider what you get out of work, some people might say positive things about enjoyment or a sense of achievement. "Others might just focus on the salary. "However, the rewards don't stop there, because there are a number of other workplace perks you can make the most of, which could leave you hundreds or even thousands of pounds better off." Cycle-to-work schemes Cycle-to-work schemes are a way of not only boosting your health, but saving money through tax-free contributions from your bosses. They work by your employer buying a bike for you and then your hiring it through them through monthly salary sacrifice payments. But the key thing is that it means you end up paying less National Insurance and income tax on your salary. Sarah Coles said such a scheme could save you around £300 overall on a bike costing £1,000. Opt for salary sacrifice Salary sacrifice lets you give up a portion of your salary in exchange for a higher pension contribution from your employer. Your overall salary may go down but your take home pay doesn't as the process means you pay less National Insurance and income tax on your earnings. Your employer has to fork out less on National Insurance too, and may pass on some or all of the savings to you. Clare Moffat, pensions and tax expert from Royal London, gave an example of someone earning £35,000 and whose bosses share 50% of their National Insurance saving with their employees. Without using salary sacrifice, the employee would see £2,450 go into their pension each year. However, with salary sacrifice, they would see £3,129 go in each year instead - £679 more - with their take home pay remaining at £27,320. It's not an immediate boon, but one that pays dividends in retirement. Make the most of auto-enrolment Any worker over the age of 22 earning more than £10,000 is auto-enrolled into a workplace pension. As well as your own contributions you get a contribution from your employer from the government in the form of tax relief. However, most bosses only pay contributions at the auto-enrolment minimum level of 3%. But, Helen Morrissey, head of pensions and retirement at Hargreaves Lansdown, said you can increase your pension contribution and ask your employer to match it, meaning you benefit from more tax relief. This means you could see more added to your pension pot without having to contribute much more yourself. Numbers crunched by Royal London suggest someone increasing their pension contributions this way by just 2% could add hundreds of thousands of pounds to their retirement pot in the future. Income protection insurance Income protection insurance offers you a regular income if you are unable to work due to illness or injury. It is designed to cover a percentage of your earnings, and can cover as much as 90% although typically covers 50-60%. You can decide to take out income protection yourself, but a lot of employers offer it as a work benefit. If you're not sure whether you have it included as part of your job, it's worth checking your employment contract or speaking to the HR team. Sarah said by the age of 50, you can end up paying as much as £50 a month for income protection, so if your employer offered it, that could save you £600 over just one year. Make sure to compare cover before you take it out. Childcare help Some employers offer targeted help to staff with children. For example, First Direct has two on site childcare facilities at offices in Staffordshire and South Lanarkshire, Scotland. Meanwhile, fashion retailer Next has a purpose-built nursery at its head office in Leicester. What help is available for parents? CHILDCARE can be a costly business. Here is how you can get help. 30 hours free childcare - Parents of three and four-year-olds can apply for 30 hours free childcare a week. To qualify you must usually work at least 16 hours a week at the national living or minimum wage and earn less than £100,000 a year. Parents of three and four-year-olds can apply for 30 hours free childcare a week. To qualify you must usually work at least 16 hours a week at the national living or minimum wage and earn less than £100,000 a year. Tax credits - For children under 20, some families can get help with childcare costs. For children under 20, some families can get help with childcare costs. Childcare vouchers - If your employer offers childcare vouchers you can get up to £55 a week in tax and national insurance savings. You pay for your childcare before your tax contributions are taken out. This scheme is open to new joiners until October 4, 2018, when it is planned that tax-free childcare will replace the vouchers. If your employer offers childcare vouchers you can get up to £55 a week in tax and national insurance savings. You pay for your childcare before your tax contributions are taken out. This scheme is open to new joiners until October 4, 2018, when it is planned that tax-free childcare will replace the vouchers. Tax-free childcare - Available to working families and the self-employed, for every £8 you put in the government will add an extra £2. Insurer Zurich also offers miscarriage support, IVF support and bereavement and compassionate support. You can read a more extensive list of companies offering perks for parents here. Do you have a money problem that needs sorting? Get in touch by emailing money-sm@ Plus, you can join our Sun Money Chats and Tips Facebook group to share your tips and stories
