How to help clients affected by the MPAA

Income taken from assets wholly attributable to a disqualifying pension credit, that is, pension credits from divorce pension sharing orders where the benefits were already in payment at the time of the order, is not a trigger.

So who will be impacted and what can you do?

There are two cohorts:

1. Those yet to take benefits

It will become an issue when they want to take flexible benefits but foresee continued DC savings over £4,000. They will need to accept the tax charge, reduce future savings plans or make alternative savings arrangements.

Planning  may require the transfer of pension benefits to a scheme that will allow benefits to be taken in a way that does not trigger the MPAA. Individual circumstances will dictate if benefits can be taken in a way that does not trigger.  Alternatively, perhaps non-pension savings could be used to meet their needs.

2. Those who have already triggered the MPAA

Anyone who has flexibly accessed benefits is potentially impacted if they are still contributing, or having contributions made on their behalf or by their employer and these exceed £4,000. A check of pension contributions against available allowances should be a part of any review process, so the reduction should be caught for those getting advice. Others will need to rely on employers/schemes informing them of the rule changes. 

This will not necessarily be an issue only for high earners; relatively small salaries with good quality workplace provision could be impacted. 

Some schemes will receive 18 per cent of salary between employer and employee. This would impact people on salaries from £22,223, a figure below the national average wage. Conversely, anyone only having auto-enrolment minima contributions paid will not trigger regardless of salary.  

Like those who have yet to trigger their benefits the issues are the same, if they are already contributing, or looking to start, they will have to restrict them to £4,000 or pay the tax charge. Alternate savings vehicles may be needed.

Where a tax charge is payable then this will have to be declared to HMRC through self-assessment and the charge paid, it may be possible to have this collected through future PAYE coding.

Case study 

Finally, it should be remembered that avoiding a MPAA charge might not be a good thing. 

Let’s take Bob. He earns £40,000 a year and his employer pays 6 per cent of this into a pension. Where Bob pays up to 6 per cent too, his employer will match it.

You can see from the table below that the amount of any MPAA charge will be under Bob’s control – it will be based on how much he decides to pay.