What happens if you flexibly access defined contribution scheme benefits?

If you're also a member of of a defined contribution scheme and you flexibly access your benefits, you'll have to notify all of your pension scheme providers, including SPPA within 91 days. 

The reason for this is that flexible access triggers a money purchase annual allowance test which will apply in the immediate and subsequent tax years. A flexible access statement will have been provided by your money purchase scheme. 

Subsequent money purchase contributions

Following the flexible access of benefits, the amount you can contribute to money purchase arrangements is subject to the Money Purchase Annual Allowance (MPAA). Currently, this limits the contributions to money purchase arrangements that are eligible for tax relief to £4,000 instead of the normal £40,000. This is to ensure that benefits drawn from a scheme are not then 'recycled' and used to claim tax relief on further contributions. Also, any unused Money Purchase Annual Allowance cannot be carried forward to make money purchase contributions above the MPAA in a future tax year.

Impact on defined benefit pension schemes

Following flexible access, if you exceed the Money Purchase Annual Allowance with money purchase contributions, you'll be subject to the Alternative AA (currently £36,000) for your defined benefit pensions. This may be reduced even more if you're subject to Annual Allowance tapering.  The Alternative Annual Allowance is available to carry forward to other defined benefit pension growth.

If you do not exceed the MPAA, the full AA (or tapered AA) is available for defined benefit and defined contribution pension growth and carry forward.

SPPA issues pension savings statements if growth in your registered SPPA-administered scheme benefits exceed the standard Annual Allowance. You are responsible for calculating whether you're subject to the alternative Annual Allowance. If you're affected by this and think your SPPA benefits may exceed the Alternative Annual Allowance but not the standard Annual Allowance you should consider requesting an 'On Demand' pension savings statement from SPPA.

More information

HMRC Pension Tax Manual

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