Defined Contribution Pension
This pension is made up of money paid in by you and/or employer, which is placed in a variety of investments, including shares. The value and size of your pension is based on the amount of money saved and the performance of the investments. Pensions include company, personal and stakeholder pensions. It’s also known as a ‘money purchase’ scheme.
Money Purchase Annual Allowance
This relates to a ‘defined contribution pension’ see the definition above. Once you access your defined contribution pension, it could reduce your Annual Allowance from £40,000 to £4,000 (2021/22). It’s this lower allowance of £4,000 that is known as the ‘Money Purchase Annual Allowance’ (MPAA). It means that you’ll benefit from tax relief on the money you put into your pension of up to 100% of your taxable earnings or £4,000, whichever is lower. But for this to happen, you will need to access your defined contribution pension in a particular way, known as ‘flexible access’. Examples are taking a lump sum of £10,000, or more, or by flexi-access drawdown. For more information click here.
Money Purchase Scheme
See ‘defined contribution pension’.
This is a type of defined contribution personal pension that offers low and flexible minimum contributions, a cap on charges and a set or ‘default’ investment strategy if you don’t want to choose the investment funds. For more information click here.