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PTM056530 | Annual allowance: money purchase annual allowance: payments that do not trigger the money purchase annual allowance

From HM Revenue & Customs · Pensions Tax Manual

The money purchase annual allowance will not apply if one of the following events occur:

  • payment of a pension commencement lump sum (see PTM063200)

  • payment of a trivial commutation lump sum (see PTM063500)

  • payment of funds from a money purchase arrangement as a ‘small lump sum’ (see PTM063700)

  • entitlement to a scheme pension under a money purchase arrangement where at least 11 other individuals are receiving a scheme pension or dependants’ scheme pension

  • entitlement to a lifetime annuity that cannot decrease in amount except in prescribed circumstances (see PTM062400)

  • from 6 April 2015, no more than the permitted maximum for capped drawdown continues to be paid from a pre-6 April 2015 drawdown pension fund (see PTM062700)

  • payments from a beneficiary’s flexi-access drawdown fund (see PTM072430).

Example

Karen has a money purchase arrangement with a fund value of £8,000 in a non-occupational pension scheme and wants to access all the funds in the arrangement as a lump sum.

As the fund value does not exceed £10,000 Karen can take the whole amount as a ‘small lump sum’ as she meets the necessary conditions for such a lump sum to be paid, providing she has not previously received three such lump sums from non-occupational pension schemes. The lump sum is paid 25% tax free with the remainder of £6,000 chargeable to income tax as pension income.

Payment of the ‘small lump sum’ is not a trigger event for the money purchase annual allowance.

If Karen has previously received three such ‘small lump sums’ from non-occupational pension schemes she could not receive a further ‘small lump sum’. Karen can still take the £8,000 as a lump sum but as an uncrystallised funds pension lump sum, which will also be paid 25% tax free and 75% chargeable to income tax as pension income.

However, payment of an uncrystallised funds pension lump sum is a trigger event for the money purchase annual allowance.