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Autumn Statement 2016 summary - Pensions recycling

Once you reach age 55 you can access the savings built up in your money purchase (defined contribution) pension scheme. If you take any more than the tax free lump sum, you are subject to a restricted annual allowance for future pension contributions of £10,000 per year.

This restricted allowance is called the money purchase annual allowance (MPAA). Its purpose is to discourage pensions recycling; i.e. drawing funds from a money purchase pension scheme, then placing those funds in another pension scheme, attracting additional tax relief.

Unlike the normal annual allowance any unused MPAA can't be carried forward to be used in a future tax year. Also, unused annual allowance from earlier years does not increase the value of the MPAA. If your pension contribution exceeds the MPAA you have to pay an annual allowance tax charge.

The Government is proposing to reduce the MPAA to £4,000 from 6 April 2017. You should consider this restriction when deciding whether to start to draw pension benefits in the future.

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