Only 5 per cent of people over 50 know what the Money Purchase Annual Allowance (MPAA) is and what triggers it, according to Standard Life.
Standard Life recommends that when transitioning into retirement, you consider lifetime annuities for guaranteed income while being mindful of tax implications and the MPAA. They also suggest that fixed-term annuities can help bridge the gap to your state pension but may trigger the MPAA. Standard Life advises seeking guidance from Pension Wise or a financial advisor to make informed decisions on the best retirement income options.
Pete Cowell, Head of Annuities at Standard Life, part of Phoenix Group, said: “Awareness of the Money Purchase Annual Allowance is low and it can be a potential pitfall for those who are looking to access benefits and continue to top up their pension in the run-up to retirement. This allowance has recently increased to £10,000, which could impact those looking to save larger sums. The MPAA won’t normally be triggered when purchasing a lifetime annuity, which provides a guaranteed income for life. Lifetime annuities can therefore be a beneficial way for older workers looking to start accessing some of their savings while also retaining the ability to pay significant sums into their pension.
“Having some level of familiarity with the tax rules when accessing your pension savings is vital to ensuring you’re maintaining your ability to save or not paying more tax than you need to. This is where the role of a financial adviser is particularly important, supporting people with their financial planning needs in their journeys to and through retirement. Individual annuities are worth considering for a number of reasons, and not least due to their ability to provide certainty through a guaranteed pension income, whilst preserving your pension allowance and your ability continue making significant contributions.”