Three little pots went to market


The point of this blog is to show

1. One way of avoiding the damaging impact of the MPAA on future saving

2. The depth of knowledge needed to make good at retirement decisions (especially where there is no adviser

3. To advertise the availability of TPAS to provide guidance (a service I’m hoping  to offer  through AgeWage).

The problem’s becoming “pension non grata”,

If you’re in your fifties and have been saving into pensions all you life, you may have a number of pension pots and you may want to give yourself a bit of financial relief by taking some money now and taking your income now.

But if you do this the wrong way, and many are doing just this, you run the risk of nobbling your capacity to save for the rest of your life – by triggering the money purchase annual allowance which caps tax-relief on all pension contributions at £4,000.

I wrote about this problem yesterday, because I feel that the tax-rules are so complicated that they need to get some explanation and because I think the rules around MPAA are so obscure that many people may have triggered the MPAA, not reported doing so and are in danger of HMRC catching up with them.

I would be grateful to hear from people in pensions administration about how much MPAA disclosure is going on and whether they are finding ways to police matters for the HMRC. The people I’ve spoken to so far consider this a tax elephant roaming the room.

Either the elephant is sent off (and we are let off), or the room could get very messy.

Ways round the problem (aka “bodged jobs”)

“Bodged jobs” – or “partial mitigation” as lawyers call them are based on special circumstances that can allow you to take your pension pot (s) without triggering the MPAA.

The simplest is to stick  to cashing in small  (£10,000 or less) pots. What I had forgotten is that you can do this up to three times – where the pension pot is a “contract-based pension” (one where you have a policy with an insurer or account with a SIPP- they included personal and stakeholder pensions).

Weirdly, if you have small pension pots (<£10k) from occupational pensions, then there is no limit to the number of small pots you can cash in without triggering the MPAA.

I had no idea how this rule came about , but writing on my blog yesterday, Ros Altmann explained that the idea came from the Treasury.

Don’t forget there is the three pots rule – and if people are using this rule to withdraw fully three small pension funds worth below £10,000 each will not trigger the MPAA and may be a reasonable decision, especially as people may use the money to recycle back into pensions and get another load of tax relief and tax free cash.

I pointed this loophole out to the Treasury in 2015, but they seemed to believe they could live with the tax leakage – but obviously they didn’t want this widely known so that not too many people use this advantage..

I am constantly amazed that many people still don’t know about this rule. But, that means drawing inferences from the number of pots that are fully withdrawn, without knowing whether they are valued at less than £10,000, means we cannot know the true impact of pension freedoms on other pension savers for whom withdrawing their entire pension savings would, of course, be really bad news.

I wonder whether the data exist by size of pot?

The three pot rule (and the even crazier small pot exemption for occupational pension schemes mean that those who want to bus their pensions and really get into “recycling (see Ros’ comments), can do so by creating lots of small pots.

I am not advocating this kind of behaviour as it is a bodged job, but if you are a “recyclist” you may already be splitting up big pension pots into satellite pension pots to cash out, so you can continue to enjoy a £40,000 annual allowance, funded in part by the proceeds of the small pots.

Clever? Bloody stupid if you ask me, but a tax-specialist will tell you this kind of thing works and is the kind of way rich people can get double tax-relief on the same money.

I wouldn’t go so far as to imply that “somebody in the Treasury” was dishing out tips in (Nigel Farage’s)  pub, but if he or she did, this is a beauty.

Three little pots went to market

Big picture stuff now.

The tax rules that had to be put place to combat abuse of the 2006 pension simplifications and the 2015 pension freedoms, are now so complicated that they only really benefit pension advisers and those rich enough to afford to employ them. Simple and free they are not.

The three pots rule, is only one of the ways to bodge freedoms to make pension saving a branch of tax avoidance. There is all kind of stuff you can do around the AA and LTA, and if you are worried you are paying more than £40k pa or have pensions worth more than £1m, you should stop reading this blog and go talk to John Mather (introductions on request). John will tell  you the rules – he won’t give you advice – he’s an upmarket version of TPAS).

Personal pensions were designed to be simple enough to be used by ordinary people without the need for advice. Occupational pensions were designed for the same purpose.

That I am having to spend more time worrying about not giving you  advice, than writing these words shows how big and bad the piggies UX has got.


TPAS to the rescue

As I’ve mentioned earlier, I am actively considering how the “three little piggy user experience” can be transformed into small pot pathways for those with cashflow issues in their fifties. It’s the kind of help I’d like Agewage to give people (digitally).

But most people will want someone to talk them through the kind of problems I’ve been referring to in this blog (and yesterday’s blog)

TPAS cares about your problems and has people who are paid to give you detailed guidance on what you can and cannot do on issues such as “trivial commutation, MPAA avoidance and the three pot rule”

So once again, if you are worried…

…to read all the hideous detail, including your responsibilities to tell everyone what you’ve done, here are the rules courtesy of the Prudential’s tech team.

If you are lucky enough to have someone at work who looks after pensions, speak to them and ask whether you will have a problem going forward (or possibly with non-disclosure).

In any event, it is worth giving TPAS (part of the Money and Pensions Service) a ring, to make sure you are doing the right thing. You  can get to them in working hours on

0800 011 3797

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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3 Responses to Three little pots went to market

  1. Brian G says:

    Hi Henry, good article, but of course there are not a limitless number of trivial commutations one can do with occupational schemes. This is because the total value of ALL pensions, both personal and occupational, cannot exceed £30,000 if trivial commutation is to be used. Therefore, £30,000 is pretty much the upper limit you can use a combination of small pots and/or trivial commutation. Hence the treasury not being overly worried.

  2. You have to be charging for advice (doing it professionally) to be registered to give financial advice in the regulated sense. The sort of general discussion stuff you, and typically Sunday Paper personal finance journalists, produce would not amount to ‘advice’ under the Financial Services Act.

    Since the late 1980s I noticed that employers became more and more reluctant to provide any sort of financial guidance in fear of falling foul of the Securities & Investment Board (as it was then). Even to the extent of not being prepared to discuss membership benefits of good occupational pension schemes – even though membership was not a ‘regulated product’ in terms of the Financial Services Act.

    I lobbied for clearer guidance on this way back in the 90s and the leaflet that was eventually produced is available:

    which should be essential reading for all those connected with occupational pension schemes.

    Even Group Personal Pensions can be promoted and discussed openly if the employer is not making money on them, although there are a few more constraints than occupational schemes where it states that these are not regulated by the FCA and employers are free to promote them.

    This means, I would say, having the gumption to provide guidance, sufficient concise information and a positive spin to help look after your employees’ best interests. This should include adequate signposting to sources of valuable information, such as the TPAS part of Money and Pensions Advice Service, as you state Henry.

    Keep up the good work.

  3. henry tapper says:

    Thanks Stephen, you are in fact a veteran of this and over the years I’ve been fortified by the example you’ve shown.

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