Operator: Good day, and welcome to the Scottish Widows Money Purchase Annual Allowance and Pension Recycling MasterClass. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr Simon Harris. Please go ahead, sir.
Simon Harris: Thank you, and good morning everybody, and welcome to the latest Scottish Widows TechTalk MasterClass, where we will be covering the Money Purchase Annual Allowance and Recycling. I am again delighted that Tom Coughlan and Chris Jones from the Scottish Widows Financial Planning team are joining us and will shortly be taking us through today’s presentation.
In Philip Hammond’s autumn statement, despite the usual rumour anticipation, there were not too many changes announced around pension planning. One change that he did announce, however, was the reduction to the level of the Money Purchase Annual Allowance.
Since 2011, an individual has enjoyed the ability to draw defined contribution pension savings as a lump sum. However, until the introduction of the Pension Freedoms in 2015, there were certain restrictions alongside this and anyone using the facility at the time was unable to make or have any further pension input or accrual. With the introduction of widespread flexible access through the Pension Freedoms, the Chancellor, at the time, wanted to strike a balance to allow those that needed to, maybe because their circumstances had changed, to have the ability to rebuild their pension savings, so the Money Purchase Annual Allowance was introduced at the level of £10,000 per annum.
But the government was always conscious of recycling and that individuals could act against the spirit of the rules. And in the recent consultation, following the autumn statement, said that the Money Purchase Annual Allowance should be set at a level that focuses government support on those who genuinely need, rather than simply choose, to draw on their savings, and who subsequently find themselves able to rebuild their pension. And went on to say that while setting the Money Purchase Annual Allowance at £10,000, initially, has helped to deliver a smooth introduction of the pension flexibilities, the government does not believe that a £10,000 Money Purchase Annual Allowance is needed or appropriate on an ongoing basis. The government, therefore, intends to reduce this to £4,000 from April 2017.
But is also looking to ensure that this is the appropriate amount to meet its stated aim, which is to restrict the opportunity to recycle pension income as a remuneration strategy for in-work over 55s, while allowing contributions to continue under automatic enrolment. So with this bringing the Money Purchase Annual Allowance into sharper focus, and a level with the potential to impact on more of your clients, it is an ideal time to review the rules around this, and, at the same time, remind ourselves of the recycling rules, particularly around tax-free cash.
So this morning’s presentation is scheduled to last for about 35 to 40 minutes, following which there will be time for any questions that you may forward on to us. A recording will also be made and will be put on to the Scottish Widows Adviser extranet, should you wish to review the content again, and CPD certificates will also be issued. At this point, I’d like to now hand over to Tom Coughlan to start today’s presentation.
Tom Coughlan: Thank you, Simon, good morning everyone. The content that we’re going to look at today is as follows. We’ll look at the Money Purchase Annual Allowance and why that is needed. We’ll look at what triggers the Money Purchase Annual Allowance for pension scheme members.
There are some examples just to show how the calculations work, particularly the Annual Allowance charge and how that interacts with Scheme Pays. We’ll also look at the interaction between the Money Purchase Annual Allowance and the other restriction to the Annual Allowance, which is the tapered Annual Allowance. We’ll then look at the recycling rules, with particular focus on tax-free cash recycling, and there are examples, as well, just to show how that operates. And we’ll deal with the questions that you submit over the website at the end of all that.
Starting with the Money Purchase Annual Allowance, which, for the sake of brevity, I’ll just refer to as the MPAA. As I’m sure you’re aware, it was introduced on 6th April 2015. The original limit was £10,000, and that’s where we are at the moment and that applies to anyone who accesses their pension flexibly under the Freedom and Choice Reforms.
As Simon said, that Annual Allowance is due to change to £4,000, and that will apply from 6th April 2017. There is a consultation ongoing at the moment. That consultation is not asking what the limit should be; it’s just asking what the implications are for pension scheme members of the MPAA being that low.
So why do we need this reduced allowance? The primary reason given was to prevent tax avoidance on earned income, so the Freedom and Choice regime opened up the opportunity for over-55s to direct some of their salary straight to a pension and take it straightaway, so no retirement planning purpose; just another way of accessing salary. The example on the slide just shows what the tax benefit is, so if you say an earner with a salary of £100,000; if you took the top £40,000 off those earnings, that would be subject to 40% tax, so that would amount to £16,000 income tax, leaving you with £24,000 post-tax. If, instead, that was just directed to a pension, then the client would be able to access £10,000 of it as tax-free cash. The remaining £30,000 would go into drawdown and they could take it as a drawdown payment.
The figure shown in the middle there of £12,000 is the total tax that they would pay on that, so just by washing their salary or part of their salary through a pension, they would have saved a significant amount of tax without using that pension for any genuine retirement planning purpose. So the intention of the MPAA is to restrict that. However, the way the rules are drafted is such that it allows you do this once, and then it will allow you to do it up to the value of the MPAA in subsequent years, so it doesn’t necessarily stop individuals doing that, it just severely limits the tax benefits they can draw from it.
It also prevents recycling, as well. There are various ways you can show this, but if you took £40,000 out of your pension and recycled it straight back in, you could artificially improve your fund up to, say, £43,750. There’s no investment growth in that and you’re just exploiting the difference in tax treatment between the money taken out and the tax relief on money paid back in. So the MPAA restricts that as well. Chris will get into that in a bit more detail in a moment.
The triggers for the MPAA haven’t changed. The main one is flexi-access drawdown income, and it is the income that triggers it, so just putting your money in a drawdown contract isn’t a trigger, it is just the receipt of a flexible income underneath that contract. Also, if you take capped drawdown income above the GAD limit for that contract that is also a trigger. It’s essentially the same as the first bullet, because as soon as you do that you convert your contract to a flexi-access drawdown contract.
And the other option, as well, the Uncrystallised Funds Pension Lump Sum route, which Scottish Widows refer to as a partially pension encashment. They’re the main three, the main triggers that you will see, and there are some others as well, such as a payment from a new style flexible annuity, which can go down in value, and also certain types of a small scheme pensions set up in the last couple of years, they can also trigger it as well. And primary protection members, who take standalone lump sums, that will also trigger as well, so it is the main three and the last two we’ll see less commonly.
The other trigger, which wasn’t under the Freedom and Choice regime, is flexible drawdown. This is the old style flexible drawdown before 6th April 2016. That allowed the full fund to be taken as cash, so the MPAA applies in full from 6th April 2015. Once the MPAA is triggered, it applies indefinitely and not just for that tax year. And it is an irrevocable situation, so clients should think about the impact it will have on their pension funding before they take any pension income under the bullets shown on the slide there. There are other triggers, as well, which we haven’t gone into in detail, but they are available in the articles that we have on our website.
There are still ways in which you can access your pension without triggering this restricted allowance, so tax-free cash is still an option, even if it’s connected to drawdown. The actual tax free cash itself is not a trigger. Tax-free cash and then nil-income drawdown is an option and allows you to retain the full annual allowance. Trivial commutation lump sums under DB schemes, that is also allowed without triggering the £10,000 allowance. And also small lump sums, the main one we will see is the small pots rule, that allows up to three pots to be taken of no more than £10,000 in value. So a member who is thinking of taking some of their pension benefits later by drawdown, they will want to look at using the small pots rules first, and that will allow them to take up to £30,000 from their fund before they trigger the restricted allowance. And, also, just the standard options as well: standard annuities, standard scheme pensions - the usual pension income options are allowed. And also, if you have a capped drawdown contract and you stay within the limit, then that is not a trigger either.
That is how the MPAA is triggered, but when does it apply from? In the vast majority of cases, it will apply from the following day. So a member with a capped drawdown contract that they convert to flexi access drawdown. They then receive income on 10th January 2017. It is receipt of income that triggers it and it will apply from 11th January 2017 onwards. As I said, the exception to that is flexible drawdown, so someone who had a flexible drawdown contract before 6th April 2015, the MPAA applies from the earliest possible date, which is 6th April 2015.
What contributions are caught by this? It is DB accrual and money purchase contributions paid before the trigger event. So the year in which the MPAA is triggered is a special case. So, let’s take the example of a client who receives flexi access drawdown on 6th October 2016, so their year is split roughly halfway in between and contributions paid before and after the trigger are potentially treated differently. So they have a final salary scheme, and also a personal pension. The accrual within the final salary scheme is just spread evenly throughout the year, but the personal pension plan obviously will have contributions with actual contribution dates, but the trigger, in this case, separates those contributions to the personal pension and it is only those contribution paid after that that are affected. So, the DB accrual is all outside of these rules, and the money purchase contributions paid before the trigger date are also outside the rules as well, but they do have to be tested against the Annual Allowance. So they are tested against the rest of the Annual Allowance, which is called the Alternative Annual Allowance, and that will be normally £30,000, plus carry forward. That’s the year in which the trigger event occurs. In later years, it is a lot more straightforward because you won’t have that split between pre and post-trigger money purchase contributions. It is as simple as all the DB accrual is tested against the alternative Annual Allowance and all of the DC contributions are tested against the MPAA.
Again, just to show an example as to how that works a bit more clearly. So the same client who triggered the MPAA on the 6th October 2016. In that year, to their DC scheme, their employer was paying £1,500 per month. The employee was paying £1,000 per month gross. All of those contributions on the first of each month, and he also had a defined benefit scheme with a total accrual over the year of £13,000. And there, the employee was paying £400 per month gross to that. The employee contribution is largely irrelevant for the annual allowance because it’s all absorbed within the accrual. The first thing is to look at is what contributions are tested against the MPAA. And as I said, that is just Money Purchase contributions paid after the trigger date, so that’s £2,500 per month in total, and they’re all paid each month from 1st November 2016 to 1st April 2017, so that’s about six lots of £2,500, so that’s £15,000 against the MPAA. And then the rest of the contributions are tested against the Alternative Annual Allowance, so that’s the DB accrual of £13,000, and then the Money Purchase contributions before the trigger event. So that’s the other six lots of £2,500. So, in total, that gives us £15,000, plus the £13,000 accrual, which is £28,000, which is tested against the rest of the Annual Allowance.
Again, so once you’ve worked out what the Annual Allowance excess is, then there are two options as to how the charge applies, so either the MPAA has been exceeded or it hasn’t. If it has, then there are two Annual Allowance tests. So the first is to work out the excess against the MPAA, so that’s the £15,000 on the left-hand side, against the £10,000 allowance, and that excess you add to the excess, if there is any, against the rest of the Annual Allowance. And in this case, they’ve paid £28,000, and that’s less than the remainder of the Annual Allowance, which is £30,000, so there’s no excess there.
And then what you do is you test all pension input against the standard Annual Allowance and you take the highest of those two excesses, and that is what your tax charge is based on. If the MPAA haven’t been exceeded, so let’s say they’d only paid £5,000 against the MPAA, then you just do the standard Annual Allowance test and that gives you your Annual Allowance charge.
Just to show that in a flow diagram which should hopefully make it a little clearer. So, the first instance is where the MPAA has been exceeded, so the first is the MPAA test. That’s against the £10,000 Annual Allowance and they paid £15,000, so that’s a £5,000 excess against that allowance. And then you do the rest of the Annual Allowance test, so against the £30,000, but obviously that £30,000 can be increased by carrying forward, if necessary.
So they’ve paid £28,000 against that, so there is no Annual Allowance excess there. And then you do the standard Annual Allowance test against the £40,000 Annual Allowance. So the £15,000, plus the £28,000, that’s £43,000, and again, we’re assuming there’s no carry forward, so it is just against the £40,000 Annual Allowance, so there’s a £3,000 excess. So the MPAA test gives you an excess of £5,000. The test against the Standard Annual Allowance gives you an excess of £3,000, so, in this case, the actual Annual Allowance charge is based on the highest of those two, which is the £5,000, and that is just to prevent the excess over the £10,000 allowance just being absorbed into the rest of the Annual Allowance.
If the MPAA hasn’t been exceeded, then it’s very straightforward. You just do the standard Annual Allowance test. And that’s just the same as the right-hand side on the previous slide, so total pension input, £43,000, against the standard Annual Allowance, gives you an excess of £3,000. So that situation may arise where instead of £15,000 paid in Money Purchase contributions and £28,000 paid in DB accrual, it was just £5,000 to DC schemes, and the rest amounted to £38,000, so it was a different contribution mix, but because the MPAA hadn’t been exceeded, you just use the standard Annual Allowance test.
Okay, so once you’ve worked out the Annual Allowance charge then it is just the usual process for working out what the tax is. So the excess is just added to income and it’s taxed at a rate that depends on what band it falls in, so if it falls in the additional rate band then it’s 45% tax, and, usually, that is paid by self-assessment. Scheme members often have the scheme pays option where it can be deducted from the fund. However, when it comes to the MPAA, this option is unlikely because the usual conditions have to be met. So the scheme is obliged to pay the charge a member requests, and the liability is at least £2,000, or it would have been at least £2,000 against the standard £40,000 Annual Allowance, and the member has actual pension savings within that scheme of at least £40,000. So as the member might just be paying, say, £11,000 in total, but they still have an MPAA excess, yet they wouldn’t have exceeded the £40,000 savings requirement in the scheme in that year. So, at the moment, the Scheme Pays rules are incompatible with the MPAA, so we’ll just look for that to be addressed at some point, but at least in the short term, any excess above the £10,000 Annual Allowance will probably have to be met by self-assessment.
Just one final area to look at. This is the interaction between the MPAA and the Tapered Annual Allowance. We could have a member who has, because of high earnings, an annual allowance tapered down to, say, £25,000, so they’d get to that if they had adjusted income of £180,000, and they’ve also accessed their pension flexibly, which means they have the MPAA applying to those contributions as well. The way the interaction works is that the member still gets the £10,000 MPAA, or £4,000 from April. It is the rest of the Annual Allowance, the alternative Annual Allowance that itself is tapered. So, in this case, instead of getting a £30,000 alternative Annual Allowance plus carry forward, they just get a £15,000 Annual Allowance, plus carry forward.
They could be in a situation where their earnings are very high, which means, at the moment, they might only get the MPAA. The rest of the Annual Allowance has been tapered down to nothing, so they won’t be able to fund DB schemes unless they have some carry forward to cover that. So that is how the interaction works at the moment; the taper always applies to the rest of the Annual Allowance and the MPAA should be unaffected.
That’s all we’re looking to cover today on the MPAA. Chris is now going to look at the recycling rules.
Chris Jones: Thanks, Tom. Yeah, I’m going to look at recycling generally, and particularly the detailed rules around recycling for tax-free cash.
The recycling of income itself is essentially tax neutral. The example on the slide shows a basic rate taxpayer. You take a pension income out and it’s subject to 20% tax. You put it back in again and you get 20% relief and you’re back where you started. Whereas recycling of tax-free cash can artificially increase the value of a pension fund; if you take out £15,000 free of tax, as an example, and put it back in again, you get 20% relief and increase the value, as the example shows.
Of course, both are very much linked. In the income example, the funds being put back in are eligible for a further 25% tax free cash. In the recycling example, 75% of that higher value will now be subject to income tax at only 25%.
Whilst they’re very much linked, HMRC treat them in a very different way. Aside from the Money Purchase Annual Allowance, as Tom has described, there are no specific regulations restricting recycled pension income. The ability to reinvest income is limited by the fact that it itself doesn’t qualify as relevant UK earnings. Therefore, contributions would need to be supported by other earnings or limited to £3,600 if they’re not working.
For those with other types of pension income that doesn’t trigger the Money Purchase Annual Allowance, are still free to recycle, again, subject to earnings are limited to £3,600. From HMRC’s point of view, the recycling of tax free cash is far more serious an issue; it’s one of the specific situations where HMRC may apply an unauthorised payment charge. This can mean that instead of receiving a payment tax-free, it can be subject to up to 55% tax charge. However, it’s fairly difficult to fall foul of the law.
In order to be treated as an unauthorised payment, you have to meet four conditions, or break four rules. Firstly, the tax-free cash must to be more than £7,500. Secondly, there must be a significant increase in contributions. Thirdly, a significant amount of the tax-free cash must be recycled. And finally, and probably most importantly, the recycling must be pre-planned.
Let’s look at those four conditions in detail. The first one is very straightforward, is the cash-free cash is greater than £7,500? There’s a little extra twist in it, though, because it’s not just that one-off payment, it’s any tax-free cash that’s taken in the previous 12 months. It’s currently £7,500, and before April 6th 2015, it was always 1% of the lifetime allowance. So we’re looking at any cash taken in a rolling 12-month period and not just cash on that single event, but this will often be broken and you’d only have to take more than £30,000 crystallised and you’ll have more than £7,500 of tax-free cash.
Is there a significant increase in contributions? An extract from the Pension Tax Manual notes that as a rule of thumb, the Revenue will treat a significant increase, or only regard it as a significant increase, where the additional contributions are more than 30% of the contributions that might otherwise have been expected. So, in order to check any increase, you have to first establish the normal levels. It’s possible for normal contributions to vary from year to year, as long as the basis doesn’t change. For example, where somebody pays a percentage of their self-employed profits, and the profits fluctuate from year to year. Also, if something like any increase is unrelated to tax-free cash, e.g. the increase is due to auto-enrolment minimums – this should not cause any issue.
Another important point is this is over five tax years, two tax years either side of the received lump sum. So, for example, you take a lump sum in this year, you’ll look back as far as 2014/2015 and look forward as far as 2018/2019 to review that increase.
Another important point is the order of the transactions doesn’t matter. If you use your savings to make a contribution and then subsequently, you replenish the savings with tax-free cash, you are still caught, or you can still be caught, sorry, I should say.
The third condition: is the increase of more than 30% of the lump sum? Again, with this, you’re always comparing the contributions you make over the five years, two years before and two year after receiving the lump sum, with that lump sum over 12 months, so again, one that could easily be broken.
The fourth condition: is recycling pre-planned? This is really the key one. Often, clients making significant contributions will fall foul of the first three conditions. It then comes down to whether or not contributions were pre-planned. Pre-planning applies when the client makes a conscious decision to take their tax-free cash and use it to either directly or indirectly make increased pension contributions. It doesn’t matter whether the increased contributions are made before or after the tax-free cash payment, the key is the intention.
And another extract from the Pensions Tax Manual, ‘the individual must have intended from outset to take pension commencement lump sum to enable significantly greater contributions.’ There’s some good news, also, in the Pension Taxation Manual. The onus is not on the individual to prove the absence of the intention to use a lump sum to pay a significantly greater, the onus is on HMRC to show that pre-planning has taken place. But that doesn’t mean you can – as long as you’ve got a reasonable excuse you can recycle at will, the Revenue will always look at the context and they will challenge it if they believe that pre-planning took place.
Another positive note, again from the Pension Taxation Manual, is that they actually quote themselves, ‘Very few lump sums will be affected by this recycling rule. Pension lump sums will not be caught to be a part of an individual’s normal planning.’
We’ll now look at a couple of examples. So the first one, the client takes tax-free cash of £50,000 to pay off a mortgage. Subsequently receives an inheritance of £30,000 and decides to top up their pension. Is that recycling? It shouldn’t be no. If it breaks the first three rules of tax-free cash is greater than £7,500, their increase, let’s assume they weren’t paying any before, the increase more than 30%, and it’s more than 30% in tax-free cash. There was no pre-planning there. When they took that money, it was to pay off the mortgage. It was the inheritance that led them to make that extra contribution.
In the second example, a client has been paying £10,000 into their scheme. Perhaps they reached their normal retirement age for an occupational scheme and take their tax-free cash at that point. They leave that employment, and later move to a new employer and join their standard pension scheme on a standard contribution basis with an annual contribution of £20,000. Again, that shouldn’t be caught. Again, it breaks the first three rules, but there was no pre-planning in this situation. The contributions have come just from the reason of gaining employment. There was no pre-planning intended, necessarily.
They’re a couple of examples where according to HMRC guidance there shouldn’t be an issue, and that should be the situation for the vast majority of cases. Clearly, though, you need to take care when advising clients, who take their tax-free cash and are also increasing, or have already increased their contributions. Although rare, the cost of getting this wrong would be extremely high.
Linking that back to the Money Purchase Annual Allowance – the impact of the Money Purchase Annual Allowance on recycling. For income-related recycling, for many people, is now restricted by the Money Purchase Annual Allowance. Unless the triggers can be avoided e.g. by using capped draw down. £10,000, reducing to £4,000 severely limits what can be paid back.
Tax-free cash is actually not necessarily restricted by the Money Purchase Annual Allowance, so you can take the cash-free cash and move that into drawdown with nil income and that won’t trigger the Money Purchase Annual Allowance. However, all the recycling rules I’ve just discussed will still apply and you need to take care then.
That’s all the technical content we have. I’m just going to remind you of our other support material available on the website under the Financial Planning section of the adviser website. There are tools and various retirement planning articles and other support material. Another thing highlight I - it’s gone live yesterday on the Scottish Widows website and it’s the latest edition of Techtalk. In that, we will have an article on the Money Purchase Annual Allowance and on pensions recycling, so very much linked to this presentation, so there will be more examples and more detail in there. There’s also a very topical article on defined transfers and the lifetime allowance, which is becoming very topical as more and more people are looking at a transfer out of their DB scheme with very high transfer values. We also cover the salary sacrifice changes announced in the autumn statement and look at the National Insurance Reform, which includes changes to redundancy payments, which could again make using pension contributions instead of receiving cash redundancy payments more attractive. That went live on the website, like I said. Those of you who receive printed copies should receive them in the next few days. Also, a reminder that there’s other – all our previous master classes are available on the website for you to view and a transcripts of them.
Now I’d like to open up for any questions. Operator, could you provide the instructions for questions?
Operator: Certainly, sir. If you would like to ask a question, ladies and gentlemen, over the webcast, please type it into the ‘Ask a question’ box and hit send. Thank you.
Chris Jones: Okay, we’ve got quite a few already. Tom, do you want to take the first one? ‘Are big earners, £210,000 plus, going to be limited to £4,000 after April 2017?
Tom Coughlan: Only if they trigger the Money Purchase Annual Allowance, so just having high earnings doesn’t trigger that. What that will do is reduce your Annual Allowance; it will taper it down to £10,000. It’s only if you additionally trigger the Money Purchase Annual Allowance that you will have that £4,000 Annual Allowance. So, if that client does trigger it, then what they’ll essentially have is a £6,000 Annual Allowance, plus a £4,000 Money Purchase Annual Allowance, so it just depends on whether they trigger it in addition to having high income as well.
Chris Jones: I’ll take, ‘Does transferring a DV to a personal pension trigger the Money Purchase Annual Allowance?’ No, that option shouldn’t trigger if you just move it into uncrystallised funds, or even if you were to take tax free cash and move it into drawdown, as long as you didn’t take any income you would not trigger the Money Purchase Annual Allowance.
Tom Coughlan: One for you, Chris, regarding recycling. ‘If tax-free cash is specifically used to pay off debt and separately for tax planning, the client increases salary sacrifice, is this caught by the anti-recycling rule?’
Chris Jones: Yeah, and it’s very difficult for us to give clear advance clearance, but if the person’s – if their reason for taking that was to pay off debt, then as a separate planning exercise if they decided to increase their pensions. It shouldn’t be, but it’s very difficult to say certainly that it would be okay. It’s the intention, so that intention was to pay off debt, so under the rules it shouldn’t be caught.
Tom Coughlan: Okay, I’ve got a few questions coming through. Another one here that I’ll take. ‘Please could you explain how triggering the Money Purchase Annual Allowance affects carry forward?’ Yes, so carry forward doesn’t have any interaction with the Money Purchase Annual Allowance. The Money Purchase Annual Allowance is £10,000, and carry forward cannot be added to that. And the same when we get to April, as well, when it goes down to £4,000, you are just restricted to that. No carry forward can be used to increase that.
Chis Jones: Here’s one that I’ll take. ‘How does the Annual Allowance impact those who have already triggered the Money Purchase Annual Allowance but are still making contributions through auto enrolment?’ It’s via any contributions via anything, really. We’re not sure, at this stage. We expect that the £4,000 limit to apply to everyone, including those who have already triggered it. There are people lobbying to keep it at two separate levels. I suspect that will be too complex and I suspect that the government won’t be interested, but we don’t know the answer to that one for sure yet.
Tom Coughlan: And perhaps just a couple of more questions before we’ll have to just wrap it up. ‘In your example, why was the Money Purchase Annual Allowance tested against £10,000 and then £30,000 separately?’ There are two separate tests, and separate contributions are tested against each limit, so it is just the Money Purchase contributions paid after the trigger event, which are tested against the £10,000. It is everything else, all the other contributions, that are tested against the £30,000, so there’s two. You’ve got to split the contributions up and test them against those two separate limits, and as I said, it’s just a way of ensuring that if you do have a Money Purchase Annual Allowance excess, say, £2,000 over, that that isn’t just absorbed into the rest of the Annual Allowance, so you’ve got to separate it. So someone who just pays £12,000 in Money Purchase contributions, they’ve gone over the £10,000, they will have an Annual Allowance excess based on that. It doesn’t matter that the rest of their Annual Allowance is unused, and the article that I published in this edition of TechTalk has a few examples which explain in a bit more detail how it operates.
Chris Jones: Another one sort of aimed at me, I think. ‘Would a client be caught by recycling if drawing tax-free cash as part of a divorce settlement, with the company then paying large payments back into the scheme after the divorce?’ Yeah, you’ve said ‘I guess not but..’, and that’s kind of right. It shouldn’t do. Looking at the rules, if the intention was they needed cash to pay to their former spouse as part of the settlement, then their intention there, that’s why they draw the cash, there’s no intention to artificially inflate their pension fund, so it shouldn’t be caught, looking at the rules.
Tom Coughlan: I think that’s all the time we have for your questions and if we’ve missed any questions, then we’ll come back to you in the next few days. I’ve got your email addresses, so we’ll just give you an emailed reply to your question.
Chris Jones: Thank you for all the questions. Now back to Simon, for closing comments.
Simon Harris: Thank you Tom and Chris for guiding us through today’s presentation. What we’re seeing, whilst the Pension Freedoms has opened up much greater flexibility of retirement for clients, as to when and how they utilise their benefits, there still exists some complex rules around retirement planning which evolve and change all the time. This can mean more individuals now run the risk of inadvertently falling foul of these rules throughout their planning cycle in the absence of help and advice. Even when an individual receives a notification or warning about exceeding a limit, do they fully understand this and its implications without the practical support that you can provide? I therefore hope this session has served to keep you right up to date with the rules and any changes around these two key areas and identified areas of advice for your clients if, indeed, you’re not already addressing these issues.
As with our previous MasterClasses, a recording of today’s session will be placed on the adviser extranet for further review, and if you wish to review any of the other recordings, as Chris highlighted, covering such areas as the Tapered Annual Allowance, then they are all available on the extranet as well.
As highlighted earlier on in the call, CPD certificates will also be issued. And again, thank you for all the questions today, and any questions we didn’t have time to get to today, we will email you an answer after the call. My thanks again to Chris and Tom for taking us through the slides today. Thank you for joining, and that concludes today’s presentation.
Operator: Thank you, ladies and gentlemen, that will conclude today’s Scottish Widows, The Money Purchase Annual Allowance and Pension Recycling Masterclass. Thank you for your participation. You may now disconnect.