Employees are able to take lump sum payments in a money purchase arrangement as an uncrystallised pension fund lump sum (UPFL) or flexi-access drawdown. An amount can be taken free of tax and remainder will often be taxable at the marginal rate of tax (rather than 55%).
Once an employee has drawn down they are only then able to save a certain amount annually that remains tax free and this is known as the MPAA. Until April 2017 this has been set at £10,000 per annum which is obviously lower than the standard annual allowance of £40,000 (before possible phasing for employee’s with income of over £150,000).
In his budget, the chancellor confirmed this would be amended from April 2017. The change is a reduction in the MPAA from £10,000 to £4,000 per year where pensions savings in a Defined Contribution Pension Scheme had been accessed. The objective is to counter using flexibilities around accessing as a means to avoid tax on current earnings by diverting salary into a pension scheme and gaining tax relief and also restricts gaining a second round of tax relief by withdrawing and then reinvesting.
These changes will be effected through the Finance Bill 2017.
