Money Purchase Annual Allowance (MPAA)

Money Purchase Annual Allowance (MPAA)

What is the annual allowance?

The annual allowance is a limit to the total contributions that can be paid into defined contribution pension schemes and the total amount of benefits that you can build up in defined benefit pension scheme each year, for tax relief purposes.

The annual allowance is currently capped at £40,000 although a lower limit of £10,000 may apply if you have already started drawing your pension. The annual allowance applies across all of the schemes you belong to, it’s not a ‘per scheme’ limit and includes all of the contributions that you or your employer pay or anyone else who pays on your behalf.

When does MPAA apply?

HMRC introduced the MPAA to ensure that there are no potential recycling issues with individuals claiming further tax relief on any new contributions made having just taken their pension benefits under the new flexibility rules.

It is only when pension benefits have been flexibly accessed that the MPAA of £10,000 will apply. This includes various different options (known as trigger events) such as:

  • Taking an uncrystallised funds pension lump sum (UFPLS).
  • Taking income above the maximum GAD limit from an existing capped drawdown arrangement.
  • Being in flexible drawdown at any time before 6 April 2015 as a member (not a dependant). [Whether they have taken income or the flexible drawdown policy still existed at 6 April 2015 is irrelevant].
  • Going into flexi-access drawdown from an existing capped drawdown arrangement or with uncrystallised funds and then subsequently taking income.
  • Taking a stand-alone lump sum for an individual who has primary protection with associated registered tax-free cash.

What is the proposed change from 6 April 2017?

The government announced in its Autumn Statement on 23rd November 2016 that it’s proposing to reduce the MPAA from £10,000 to £4,000 with effect from 6 April 2017. A 12 week consultation, seeking views on the possible impact of this reduction, is running until 15th February 2017. Chancellor Philip Hammond said the decision is in order “to prevent inappropriate double tax relief”.

The money purchase annual allowance will only start to apply from the day after you have taken flexible benefits and so any previous savings are not affected.

Please note this article is for information purposes only.

The benefits of reviewing your Pension

The benefits of reviewing your Pension

Is your pension performing the best it possibly can for you?

Do you remember the last time you checked on how your pension is performing? Failing to carry out regular reviews on your pension performance could mean you’re missing out. You may even discover that your pension scheme is no longer able to provide you with that comfortable retirement that you were looking forward to.

If you are currently paying into a personal pension scheme or have contributed to either a personal pension or even a money purchase scheme offered by a previous employer in the past, a pension review can be immensely beneficial. One of the factors to investigate when undertaking a pension review are the charges involved. The charges incorporated on some of the “older style” plans are much higher than their modern equivalents, so having a review will reveal what effect these charges are having on your total pension value.

Many people pay into pensions for years, sometimes their whole lives and have no idea how hard their money is working for them. Some clients aren’t even sure what type products they have holdings in and what element of risk is associated to them.

Pension Reviews

Here at Heritage we provide an objective assessment of your pension products and advise you exactly where you stand and how your pension is actually performing. If we find that your current plan is performing well and meeting your current requirements and expectations, it may well be a case of staying as you are. However, if we feel it would be financially beneficial to you by transferring your pension to another scheme, we’ll make a recommendation for a more suitable product and clearly explain the benefits and expected outcomes in order to help you make a more informed decision.

Pension Advice Allowance of £500

Pension Advice Allowance of £500

Closing the ‘advice gap’

A new government scheme is offering a £500 tax-free allowance to pay for professional pensions advice allowance.

“Individuals approaching retirement have a plethora of options available to them. The best way to achieve this and get peace of mind and reassurance about retirement choices is to see a professional adviser” – Richard Freeman, chief distribution officer at Old Mutual Wealth

Pensions Advice Allowance

Financial Advice Market Review (FAMR) found that there is an ‘advice gap’ for retirement advice for people without “significant wealth”, calling on the treasury to introduce a tax free stipend from pensions to make financial advice more affordable and easily accessible. The pensions advice allowance will come into force from April 2017 and will allow people below age 55 to take up to £500 out of their pension plans tax free to put towards the cost of financial advice. It is possible that people as young as 45 could be eligible for the scheme, which will be in addition to the normal 25% tax-free lump sum you can take out of your pot from age 55.

Do I just get one allowance?

The government is considering letting people use the pensions advice allowance more than once. That is very useful as it means you could use it to help pay for more advice if your circumstances change a few years down the line.

What sort of advice can I get for £500?

According to the government, face-to-face financial advice costs on average £150 per hour, and for pension/retirement planning, you might be looking at up to 9 hours, which could add up to £1,350.

The pensions advice service provided by Financial Advisers will vary from firm to firm, however as an example at Heritage we provide a detailed recommendation report, which will be produced after we have fully accessed your current pension arrangements. This will include analysing the current risk of your portfolio, the performance, the structure, along with the features and benefits of the current plan.
In addition we can also produce a cash flow model report, which will consider the potential future income that your pension plan (s) will generate versus your goals and objectives in retirement. The report will help to tell you if you are on track for your retirement aspirations, or if you need to adjust your savings / targets.

Why should I seek advice via the Pensions Advice Allowance?

Professional adviser search website Unbiased claims that people who take professional advice save on average £98 more every month and receive an additional income of £3,654 every year of their retirement, based on a pot of £100,000.

More to be done!

Freeman believes that there is still more to be done and predicts more proposals for change from within the FAMR recommendations following its launch last year. “We hope it will be the first of many measures introduced to help people access”.

Contact one of the team to find out more about the Pensions Advice Allowance.

What Brexit means for the UK and the EU

What Brexit means for the UK and the EU

The UK’s surprise decision at the Polls – Brexit

The end of polling in the UK’s referendum on continued participation in the European Union (EU) at 10pm London time on Thursday proved to be the high point in the expectations that a ‘remain’ vote would prevail.  At that moment a well-known betting organisation placed a 90%+ probability on the continuation of the political and economic bloc’s status quo.  A little over six hours later such hopes were completely dashed.

The 52%/48% victory for the ‘leave’ campaign reflects a widespread distrust of Europe-wide policy-making and regulatory intervention in the UK as well as a scepticism about immigration and a nationalism which prefers more complete rule from the UK’s Parliament.  The rejection of the preferred choice of the favoured choice of most of the UK’s political leadership and almost all countries of note has implications far beyond the UK.

Given the unanticipated nature of this decision it is not too surprising that the British Pound fell sharply – briefly to a 30+ year low against the US dollar – and the UK equity market followed suit.  Financial market volatility was augmented by the resignation of the UK Prime Minister who will stay in office just to oversee the election of his successor.  Fears that rating agencies will downgrade their AAA ratings on UK debt and that the Bank of England would have to enact some support mechanisms to help the Pound completed the scene.

The UK has a two year period of grace to negotiate its exit from the European Union and much uncertainty surrounds the practicalities around this move.  Leading European Union politicians have generally been quite coy on next steps so far although more clarity is expected over the weekend.  The UK will leave the European Union though and will have to strike new, bilateral trade deals.  There is inevitability uncertainty around this and the scope to have a direct impact on economic growth rates over the next few years is clear – after all most formal economic studies on the impact of a “Brexit” identified clear economic growth declines.

The decision will also impact European politics and potentially even the structure of the euro single currency zone.  Nationalist politicians across the European Continent are starting to demand their own referendums and the upcoming Spanish election this weekend could reflect a continuation of the electoral disquiet via a large vote for the anti-austerity party on the bill.  These are difficult times for Europe and policy-makers need to re-engage on a broader European vision for the future blending economic flexibility reforms and greater cross-border support.   We can not rule out more economic policy stimulus.

The same is true for the UK.  The country cannot just rely on a sharp fall in the value of the Pound to come to their aid.  If the UK wishes to take full advantage of exiting the European Union then it too must boost flexibility further – but how to do this without such a direct flow of immigrant labour (if tighter restrictions are imposed on entry which is likely) and also countering the feeling of anti-austerity disquiet at a time that fiscal and trade deficits are already high is not clear.  Now comes the harder part of policy implementation.

As today’s financial market moves show it is hard not to conclude that Europe (including the UK) has scored an old goal today with unclear repercussions over time.  The best companies will still prove able investments but for most international investors the general European markets have become that little bit harder to invest in.

This article is for information purposes only and should not be taken as advice.

6 Reasons why you should look at a Final Salary transfer

6 Reasons why you should look at a Final Salary transfer

Final Salary Pensions or Defined Benefit plans have had the historic view that “it’s always wrong to come out of a defined benefit pension scheme”. This is no longer the case and to redress the balance here are six good reasons to consider the transfer option.

  1. A final salary benefit can be a significant family financial asset, a transfer capitalises and gives you control of this asset, which can now be passed down through the generations without inheritance tax.
  2. Transfer values are so high at present that a good deal of the investment risk associated with transfers can be removed. On most transfer values a 2% real investment return, after fees and inflation, will provide the same level of pension plus potential for residual value to be passed on.
  3. Transfers offer you complete flexibility over when and how much you draw on your pension account and are in complete contrast to a fixed monthly pension income. It’s inconceivable that 60 year old retiring now with the prospect of potentially 30 years or more of retirement will have the same cash needs year in year out until they die.
  4. This flexibility extends to taking the cash as early as age 55 and deferring the taxed pension until it’s needed. The potential uses of this early cash sum are extensive, from paying down mortgages early, to investing in ISAs to generate tax free income, or helping the next generation on to the property ladder.
  5. A final salary transfer takes away the life expectancy gamble implicit in a lifetime income. It capitalises the benefit once and for all based on normal life expectancy, irrespective of your personal health now and in the future.
  6. With flexibility comes the ability to be tax efficient. In virtually all the cases where we have recommended a transfer there has been the ability to save tax as compared to the rigid final salary pension benefits. These can include:
  • A higher tax free cash sum following the transfer
  • The ability to limit pension income to specific income tax bands
  • The opportunity to defer and minimise the impact of lifetime allowance (LTA) penalty tax charges

A final salary transfer allows you to swap a future pension entitlement in a final salary, or defined pension scheme for a cash sum that must in the first instance be put into a registered, or HMRC recognised pension scheme. The cash sum value is the ‘cash equivalent ’ of the pension income you leave behind, or put another way the amount of money today that would be notionally set aside in the scheme to meet your specific pension liabilities as they fall due.

This article is for information purposes only and should not be taken as advice. Also seek Independent Financial Adviser before making a decision on your pension benefits.

Ruthin Castle Auto Enrolment Workshop

Ruthin Castle Auto Enrolment Workshop

September 26th 2015

Free Auto Enrolment Workshop @ Ruthin Castle Hotel

Support for Local Businesses

If your business is enrolling / staging for Auto Enrolment in the next 12 months, you and your payroll manager cannot afford to miss this great local event.


8:00am Arrival with Tea / Coffee and Bacon Rolls

8:15am Auto Enrolment by Heritage Financial Solutions Ltd

8:40am Q&A Session

9:00am Break for informal networking

Call 01352 770 845 or email to sign up

Venue Location

Ruthin Castle Hotel
Castle Street
LL15 2NU

Flintshire Auto Enrolment Workshop

Flintshire Auto Enrolment Workshop

September 10th 2015

Free Flintshire Auto Enrolment Workshop @ Soughton Hall Hotel

Support for Flintshire Businesses

If your business is enrolling / staging for Auto Enrolment in the next 12 months, you and your payroll manager cannot afford to miss this great local event.


8:00am Arrival with Tea / Coffee and Bacon Rolls

8:30am Auto Enrolment by Heritage Financial Solutions Ltd

8:55am Q&A Session

9:00am Payroll Integration by Bennett Brooks Chartered Accountants

9:25am Q&A Session

9:30am Guest Speaker – John Durham

9:50am Break for informal networking

Call 01352 751 368 or email to sign up

Venue Location

Soughton Hall Hotel


Pension Drawdown

Pension Drawdown

Pension Drawdown

When you decide to access your pension pot, one option is to take a regular pension income whilst leaving the remainder of your fund invested to enable the potential for growth; this is known as pension drawdown.

With the new pension freedoms you can choose to take as little or as much income as you want, subject to the terms and conditions of your contract.

Flexi-access drawdown

You can usually take up to 25% of your defined contribution pension pot tax free. The remaining 75% can then remain invested to give you a taxable pension income.

If you don’t want to take your 25% tax free cash as a lump sum instead, every time you make a withdrawal, 25% of that amount is tax free and 75% is taxable.

In summary, you can choose to convert your entire pension to drawdown all at once, or you can convert smaller segments as and when you need them.

Pension Income

Determining how much pension income you need

Deciding how much income you can afford to take through flexi-access drawdown needs careful planning, otherwise there’s a chance that you’ll run out of money. This could happen if:

  • you take out too much in the early years
  • your investments don’t perform as well as you expect and you don’t adjust the amount you take accordingly
  • you live longer than you’ve planned for

If you choose flexi-access pension income drawdown, it’s important to take a hands-on approach by keeping your investments under review. Unless you’re an experienced investor, you will need a financial adviser to help with this.

Studies by the Government have indicated that the typical individual needs a pension income that equates to approximately two thirds of their salary to maintain their lifestyle.

There are also online drawdown calculators that can help you determine how well you have prepared for retirement and what you can do to improve your retirement outlook. Please note that these calculators often assume you’re only entitled to the basic state pension. Therefore, if you believe you are entitled to more, include this in your income when using this tool.

Taking larger sums from your pension pot can mean you pay more tax. As with every investment there’s the risk that the value of your fund can go up or down. Also note Pension Drawdown is a higher risk strategy than traditional alternatives, such as buying an annuity with your pension fund, which will provide you with a pension income for life.

Capped pension drawdown

This is only available before 6th April 2015 and has limits in the income you can take out. This limit has now been raised to 150% for all pension years starting on or after 27 March 2014, so you may be able to choose to take more money from your pot each year.  However, the rules of your scheme would need to allow this.

The Budget March 2015 – The Overview

The Budget March 2015 – The Overview

Proposed pension measures

The Lifetime Allowance reduces from £1.25m to £1m on 6th April 2016, but will increase annually by CPI from 6th April 2018. Transitional protection will protect existing pension rights.

On a positive note, the Annual Allowance is unchanged at £40,000 and higher and additional rate tax relief remains available for individual pension contributions.

In addition to the 6th April 2015 ‘Freedom and Choice in Pensions’ reforms, people already receiving annuity income will, from April 2016, be able to have their annuity income assigned to a third party in exchange for a lump sum or an alternative retirement product.

Increases to Income Tax bands and allowances

Proposed rises to the personal allowance and basic rate limit will result in the higher rate threshold, above which individuals pay income tax at 40%, increasing from £42,385 in 2015/2016 to £42,700 and £43,300 for 2016/2017 and 2017/2018. A large percentage of the population will still be higher rate tax payers who can benefit from tax-relieved pension saving at 40%.

Proposed ISA changes from Autumn 2015

Individuals will be able to withdraw and replace money from their cash ISA in the same tax year without it counting towards their annual ISA subscription limit.

A new Help to Buy ISA will be introduced. For every £200 a first time buyer saves, the Government will provide a £50 bonus up to a maximum of £3,000 on £12,000 of savings, at the point they use their savings to purchase their first home.

A new Personal Savings Allowance from 6 April 2016

Intended to remove tax on up to £1,000 of savings income for basic rate taxpayers and up to £500 for higher rate taxpayers. Additional rate taxpayers will not receive an allowance.

It’s interaction with the £5,000 0% band for savings income may cause confusion, however low earners will potentially be able to benefit from both and pay no tax on their savings where total taxable income is less than £16,800 in 2016/2017.