Answered by Neil Adams
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)
However, 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 of £4,000.
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 a lump sum (e.g. an uncrystallised funds pension lump sum or UFPLS) or through income drawdown.
The reduced annual allowance kicks in if you’ve taken more than the 25% tax-free pension commencement lump sum (PCLS) and permits a maximum annual pension payment into your pension of £4,000, including any contributions from third parties.
The introduction of the money purchase annual allowance was to prevent the ‘recycling’ or pension income back into pension schemes for additional tax benefits.
Need pensions advice?
If you would like pensions advice before making any pension contributions feel free to call us on 02084327333. We can discuss your position with you to ensure you’re making pension contributions after retirement in the most tax-efficient way possible.
Frequently Asked Pensions Advice Questions
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