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
- 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
- you cash in a number of small pension pots valued at less than £10,000.
The MPAA only applies to contributions to defined contribution pensions and not defined benefit pension schemes.
Do you have a defined benefit pension that you’re still making contributions to? Then an alternative allowance might still be available to you, up to £36,000 each tax 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 £4,000 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.