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What is the money purchase annual allowance?

If you access any of your retirement pots ‘flexibly’ then your annual allowance will reduce. Any future contributions you make will be subject to the lower annual allowance known as Money Purchase Annual Allowance. It includes your own contributions, your employer’s contributions and any contributions paid by a third party into your retirement pot. If your annual allowance drops you can’t bring forward any unused annual allowances from the previous three tax years.

The money purchase annual allowance will apply only on the contributions made after you’ve accessed any of your retirement pots flexibly. ‘Flexible access’ is when you take retirement pot from a pension scheme in any of the following ways:

  • taking all or some of your pot as cash without buying a retirement income unless you take your entire retirement pot and it’s worth less than £10,000
  • buying a special type of retirement income called a ‘flexible annuity’ – the insurance company you buy the income from will tell you if it is a flexible annuity
  • using some of your retirement pot for ‘income drawdown’.

Your provider will tell you if you’ve accessed your retirement savings flexibly.

As per the recent changes to legislation the Money Purchase Annual Allowance has been reduced to £4,000. This change is effective April 2017.

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