If you start to take money from a defined contribution pension pot, the amount that can be contributed to your defined contribution pensions while still getting tax relief on might reduce. This is known as the Money Purchase Annual Allowance or MPAA. For most people, the total amount that can be contributed to their pensions each tax year which they'll receive tax-relief on is £60,000. This includes any contributions from your employer. But if you trigger the MPAA, this reduces to £10,000 a year.
The MPAA only applies to contributions to defined contribution pensions and not defined benefit pension schemes.
What’s in this guide
When is the MPAA triggered?
The main situations when you’ll trigger the MPAA are:
- if you take your entire pension pot as a lump sum or start to take lump sums from your pension pot (although see special rules at the bottom of this section for small pots)
- if you move your pension pot money into flexi-access drawdown and start to take an income
- if you buy an investment-linked or flexible annuity where your income could go down
- if you have a pre-April 2015 capped drawdown plan and start to take payments that exceed the cap.
The MPAA won’t normally be triggered if:
- You take a tax-free cash lump sum and buy a lifetime annuity that provides a guaranteed income for life that either stays level or increases.
- You take a tax-free cash lump sum and put your pension pot into flexi-access drawdown but don’t take any income from it.
There are special rules if you want to cash in a number of small pension pots valued at less than £10,000 then make sure you check with your provider that it will be treated as taken under the small pot lump sum rules. Otherwise, there’s a risk the MPAA will be triggered.
Do you have a defined benefit pension that you’re still making contributions to?
If you’re subject to the MPAA and you make no contributions to a defined contribution pension scheme, you can still save the standard £60,000 annual allowance into a defined benefit scheme if you’re in one.
Equally, if you were to save the maximum £10,000 a year into a defined contribution scheme, the maximum tax relievable savings you can make in a defined benefit scheme would be £50,000 (known as the alternative annual allowance), giving a combined pensions savings total of £60,000.
On 6 April 2023, the Annual Allowance increased from £40,000 a year to £60,000 a year. You can speak to your pension provider or administrator for more details on how this works.
You can’t bring forward any unused annual allowances from the previous three tax years to allow contributions of more than £10,000 to defined contribution pensions. It might be possible to carry forward unused annual allowance for use in defined benefit pensions.
The MPAA will only start to apply from the day after you’ve taken flexible benefits. This means any previous savings aren’t affected.
Need more information on pensions?
Call us free on 0800 011 3797 or use our webchatOpens in a new window. One of our pension specialists will be happy to answer your questions.
Our help is impartial and free to use, whether that’s online or over the phone.
Opening times: Monday to Friday, 9am to 5pm. Closed on bank holidays.
