Annual allowance: money purchase annual allowance: payments that do not trigger the money purchase annual allowance
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 dependants’ flexi-access drawdown fund (see PTM072430).
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 per cent 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 per cent tax free and 75 per cent 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.