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.

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.

Pension Annual Allowance

Pension Annual Allowance

Pensions and tax

The annual allowance is a limit on the amount that can be contributed to your pension each year, while still receiving tax relief. It’s based on your earnings for the year and is capped at £40,000.

What is the annual allowance?

The annual allowance is a limit to the total amount of contributions that can be paid to defined contribution pension schemes and the total amount of benefits that you can build up in defined benefit pension scheme each year. 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 pay or your employer or anyone else pays on your behalf.

If you exceed the allowance

If you exceed the annual allowance in a year, you won’t receive tax relief on the contributions that exceed the limit. You may have to repay the tax relief, or pay income tax on benefits in a defined benefits scheme that exceed the limit, unless you’re using ‘carry forward’ to make use of unused annual allowances from the three previous years. The annual allowance in the 2014-15 tax year is £40,000.

Changes to the annual allowance

From 6th April 2015, the annual allowance will be reduced to £10,000 if you have withdrawn more than the 25% pension commencement lump sum (PCLS) from your defined contribution pension pot. If you’re currently drawing down pension benefits using flexible drawdown, or you exceed the income limit for capped drawdown, you will also receive an annual allowance of £10,000 from 6th April 2015.

Pension input period

The annual allowance applies to the total pension contributions made to your scheme(s) and/or benefits built up over a period called the pension input period that ends during the tax year. A pension input period normally lasts for one year, but doesn’t necessarily cover the same dates as a tax year.

Your pension provider or scheme administrator should be able to give you your pension input amount for that scheme. This refers to the amount of contributions or value of accrued benefits during the pension input period. If you think that you may be getting close to your annual allowance, or may have exceeded it, you may wish to consider taking advice from an independent financial adviser.

Staging Dates – Auto Enrolment

It is vital that you prepare in advance for Auto Enrolment, the more time you put aside to prepare, the simpler the transition will be.

The new law requires every employer to automatically enrol their workers into a workplace pensions scheme if they:

  • are aged between 22 and State Pension age;
  • earn more than £10,000 a year; and
  • work in the UK

Understanding your staging date is essential and it depends on the size of your largest PAYE scheme as of April 2012. There are many online tools to help determine your staging date and you will need your PAYE reference and the size of your PAYE scheme.

In summary, these are the staging dates that may relate to you:

PAYE Scheme Size Staging Date
54 – 57 1st March 2015
50 – 53 1st April 2015
40 – 49 1st August 2015
30 – 39 1st October 2015


If you have fewer than 30 staff on your PAYE Scheme, then your staging date can be between 1st June 2015 to 1st April 2017; it will depend on the characters of your employees PAYE Scheme reference.

Please note if you do not have a PAYE scheme, this doesn’t mean your firm doesn’t have to go through auto enrolment; your staging is 1st April 2017.

Seeking professional help from an Independent Financial Adviser can help smooth out the Auto Enrolment process

5 Top Tips for Auto Enrolment

  • This process can be complex so it is vital that you prepare well in advance and allow yourself plenty of time before your given staging date.
  • Consider the financial cost that it will have on your firm and allow a balance between what you can afford and what you want for your employees. Determining the level of staff contributions needs to be revised as this could impact you financially if not prepared in advance.
  • Picking the right pension scheme for you could save you a lot of money, so you need to establish a scheme with a good outcome for your employees as well having a relatively low AMC. A low AMC (annual Management Charge) could also be a huge benefit to the individual employees.
  • Ensuring there is communication with your staff is essential as it is important for them to understand what is happening. Allowing them to be involved will help them to prepare themselves for what they need to do.
  • Establishing an efficient payroll system will relieve the complication of communication, but it is important to make sure that the data is set up correctly so it can be ready for the start of the payroll month, also reviews must be in place in order to determine the accuracy of these payments.

Seeking professional help from an Independent Financial Adviser can help reduce the workload that the complex process of Auto Enrolment involves.

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

Should you invest in a Pension or an NISA?

Should you invest in a Pension or an NISA?

Determining whether to invest within an NISA or a pension has been distorted due to the drastic changes that have been made to these investment wrappers recently.

Therefore, establishing the right place to save for your retirement can be difficult to decide.

If we begin with pensions, the new rules will allow individuals aged 55 and over to take income from their pension pot whenever they want, and how ever much they wish, whilst still retaining the 25% tax free allowance.

The New ISA rules have allowed individuals to increase the annual allowance to £15,000 and now individuals can invest as much cash into their ISA as they want. The NISA now allows transfer from Stocks & Shares to Cash, enabling clients to reduce risk from asset backed to deposit based.

Considering these changes the main benefits investing within a pension includes:

  • Pension contributions can take advantage of tax relief. For example, if you make monthly pension contributions of £500 and are a basic rate tax payer, you will gain an extra £125 per month from tax relief, taking your gross monthly contribution to £625. Higher and Additional rate tax payers can claim a further 20% or 25% via tax return.
  • When taking income from your pension pot, 25% of this can be taken out tax free.
  • If you die before age 75, your pension can be passed on to your spouse free from IHT tax.

The main benefits investing within an NISA:

  • All withdrawals from an NISA are completely tax free.
  • The benefits within a NISA can be accessed at any age, whereas the minimum age for accessing your pension benefits is currently 55.
  • In the event of your death, your NISA benefits will be able to be passed on to your spouse in the form of an additional NISA allowance.

Therefore, having a range of investment options allows you to take advantage of the different benefits provided by different saving vehicles. Seeking professional help from Independent Financial Advisers can enable you to receive the best investment options in order to provide you with a more efficient saving method either for your retirement or even just for a rainy day.

This is intended for information only and shouldn’t be taken as advice.

Pension Reforms in April 2015

Pension Reforms in April 2015

PENSION REFORMS – It’s All Changing

As many of you may already know the Government have recently proposed the biggest changes surrounding pensions that have been seen for many decades. These changes aim to provide people with the freedom and flexibility to choose how they access their pensions from April 2015.

Previously, the Government attempted to steer most people to purchase annuities (income for life contracts) with their retirement pots however, historically annuities often provide a low annual income and the pension pot is potentially lost after an individual dies. Therefore, the changes supply people with more choice with the money they have worked hard to save.

Prior to the Transition Rules the pension pot options were:

Pension unlocking in AprilSource:

The Government in March 2014 announced some transitional rules until the new pension rules are launched in April 2015, which allowed the following:

  • Trivia Commutation increased to £30k from age 55.
  • Capped drawdown increased to 150% of GAD
  • Flexible drawdown only required a secure income of £12,000.
  • Small pension pot increased from £2k to £10k


With these changes, the Government is determined to offer individuals more flexibility in regards to how they take their pension. Irrelevant of the size of your pension pot, individuals aged 55 or over in April 2015, will have absolute freedom in regards to how much they can draw out of their pension, and when they choose. There are no limits or restrictions set by the Government and individuals will only pay their marginal rate of income tax, whilst still benefiting from taking up to 25% of your pension pot tax free.


These changes will generate several benefits including Inheritance Tax. Previously, once you started taking money from a pension pot it became part of your estate, consequently beneficiaries could end up paying 40% IHT tax. Now, if an individual dies before reaching age 75, their pension pot can be passed on completely tax free and therefore, does not fall into your estate.

TAX CONSIDERATIONS – it’s not all free

However, there are tax implications that need to be considered. If you take out your pension pot as a lump sum, or empty your pension pot in the first few years, although you will receive 25% tax free, you will have to pay a marginal rate of income tax on it depending on the amount, either 0%, 20%, 40% or 45% which could amount to more tax paid than if you gradually paid yourself an income over 20 years.

Therefore, it is essential that you obtain professional advice from a financial adviser to establish the most appropriate method of obtaining your retirement income; as it will help you to take an income that doesn’t drain your pension pot whilst also determining the best route to take in regards to tax planning.

Although the flexibility and freedom these changes are bringing to pensions can benefit you, it is also important to be aware that if you spend all your pension pot too quickly and find that you are then living off the state pension, you may have to contemplate going back to work. Therefore, it is necessary to plan ahead with your retirement income as with life expectancy rising, you may find that you are working or going back to work for much longer than anticipated.

STATE PENSIONS – A Flat rate Credit

Seeking help from a financial adviser is crucial with helping with your financial planning. If you have reached your state pension age and are still currently working or are not in desperate need of it, you could benefit in the long term from deferring it.

Currently, if you were to defer your state pension for just one year, your pension would increase by 10%, and after this year, you could request that any deferred pension is given as a lump sum. Therefore, if you are in good health or want to continue working for a little longer, you would benefit considerably from deferring your state pension. However, with the new flat-rate state pension being introduced in 2016, deferring your state pension will only increase by 5.8%. In order to qualify for this new flat-rate state pension, you must have contributed 35 years’ worth of National Insurance contributions, which would provide you with £152 per week.

According to Government figures, only 45% of new pensioners will be entitled to the new flat-rate state pension. Therefore, it seems the majority might benefit greatly from deferring their state pension.

To find out more or to speak to a financial adviser call Heritage Financial Solutions Ltd on 01352 770 845, or email us at

10 of the Most Costly Pension Mistakes

10 of the Most Costly Pension Mistakes

1. Delaying saving

When starting a pension – the earlier you start, the less it will cost you to build the perfect pension. Heritage can produce a series of forecasts to help identify how much you need to save to achieve your retirement dreams.

2. Not saving enough

How much should you save? Heritage will take the reins and help in finding your “magic number” and reveal how much to put away to achieve your targets.

3. Assuming the state will provide for you

One in seven 2013 pensioners relied exclusively on the state pension for their income. Heritage will assist in finding out what your contributions should be and how far they could go. We can also show you how little the state pension will go in your retirement planning.

How much more could you get if you increased your contributions by just 5% every year?

4. Not checking your pension pot

If you have a pension, have you ever reviewed it? Is your pension on track? Recent research reveals nearly three quarters of pension savers under the age of 45 don’t even know the value of their investments. Even a seemingly small difference in performance could have a significant impact on the size of your pot. Heritage can draw on more than 50 years of combined experience to find the perfect portfolio for you to ensure that your targets are met.

A 35 year old with a £20,000 pension pot could have a fund worth £26,871 at 65 if their investments grew by 2% a year.

The fund might be worth £64,115 at 65 if their investments grew by 5% a year or £149,277 if they grew by 8% a year

5. Relying on property

You may have heard the saying: An Englishman’s home is his castle. But it may also be his largest investment. However if you decide to just use property as a retirement fund the other saying that could apply to this case is: don’t put all your eggs in one basket. Heritage agrees that diversification is key to managing risk along with obtaining returns in all market conditions, our investment committee regularly meet to consider asset allocation.

6. Relying on inheritance

Millions of Britons are relying on inheritance to fund their retirement but many could find their plans are resting on shaky foundations and the amount they end up inheriting is far less than expected and at a time that is beyond your control.

7. Not checking if you’re getting good value for money

Most people know how much they pay for their mobile phone, but not for their pension. The services you get from your pension provider vary in depth and quality. Transferring your pension to a cheaper scheme could offer the same investment opportunities, but allow your pension to not work as hard to obtain the same returns.

8. Failing to track down old pensions

Few people stay with the same employer for life. Even fewer people keep track of all the pension schemes they have joined during their career. Some estimate the total of unclaimed pensions is in the scale of billions. Remember joining more than one pension but don’t have the details to hand? Heritage has access to a number of tools to ensure you have a complete picture of all your pension plans.

9. Not taking up employer contributions

Some private sector workers aren’t currently saving into a workplace pension. This means they could be missing out on “free money”. If you are offered a company pension will this give you enough?

10. Not using pensions to save tax

Claim your share of the £35 billion the taxman gives pension savers. Baffled by pension tax rules? Heritage will help guide you through the rules, including the new pension reforms being introduced in April 2015.

Act whilst time is on your side