Can I Pay Into a Private Pension Even Though I’ve Retired?

Am I still able to pay into a pension if I am already retired? Are there still tax benefits of doing so? I have been retired some time and have excess income and was wondering whether there was any benefit in doing this?

Question asked by Peter Busby

Yes, you can continue to pay into your pension if you have stopped work, or if you have ceased full-time work and are now only working part-time.

You’re still eligible for tax relief on your pension contributions as long as you’re under 75, so if you’re a basic rate taxpayer you’ll get 20p in tax relief for every pound you make in pension contributions. As a higher rate taxpayer this rises to 40p in tax for every pound you pay in and to 45p if you pay tax at the 45% additional rate.

If you’re retired and a non-earner, you can still receive 20% tax relief even if you don’t pay tax. In this case, the most you can pay into your pension is £3,600 per tax year, made up of your contributions of £2,880 and the taxman’s contribution of £720.

The Money Purchase Annual Allowance (MPAA)

Keep in mind that if you’re already drawing on your pension and wish to continue paying into a defined contribution pension, you face a reduced annual allowance known as the money purchase annual allowance

Known as the money purchase annual allowance or defined contribution annual allowance, this applies if you’re already taking flexible income from your pension scheme, such as by:

  • Taking an uncrystallised funds pension lump sum or UFPLS)
  • Entering into flexible drawdown before April 2015
  • Entering into flexi-access drawdown and taking more than your tax-free cash after April 2015
  • You’ve used the new pension freedoms after April 2015 to exceed the Government Actuary Department limit placed on a capped drawdown arrangement you were in before April 2015, thus converting you to a flexi-access drawdown arrangement
  • You’ve taken more than the 25% tax-free pension commencement lump sum (PCLS).

From the start of the 2017/18 tax year, the MPAA was cut to £4,000.

The introduction of the money purchase annual allowance was to prevent the ‘recycling’ or pension income back into pension schemes for additional tax benefits.

Pension Carry Forward and the Money Purchase Annual Allowance

Once you’re subject to the MPAA, you can’t use pension carry forward to carry forward previous years’ contributions to increase your money purchase contributions above the MPAA in the current tax year.

You also can’t carry forward any unused MPAA to future tax years.

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