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Tax and your pension
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Capped Drawdown was a type of income drawdown that was available before 5 April 2015. It is no longer available for new designations into income drawdown.
If you have taken benefits from your pension arrangement before 5 April 2015, you may have done so using Capped Drawdown. As the name suggests, those that have taken Capped Drawdown have their income capped by HMRC to try and prevent funds running out in retirement.
The advantage of Capped Drawdown is that clients can continue to make contributions up to the maximum annual allowance amount permitted by HMRC of £60,000.
Further designation of funds to Capped Drawdown are only available to you if you have an existing Capped Drawdown arrangement in your plan and you have not taken benefits using any other method.
If you have an existing Capped Drawdown arrangement and you either take an income under Flexible Drawdown or take benefits via an Uncrystallised Funds Pension Lump Sum (UFPLS) then all of your arrangements will become subject to Flexible Drawdown rules and the standard Money Purchase Annual Allowance (MPAA) of £10,000 will also then apply.
You can find more information about Capped Drawdown here.
You can find more information about the MPAA here.