Pensions & retirement

What triggers the Money Purchase Annual Allowance (MPAA)?

Q: What happens if I exceed the MPAA?

If you exceed the MPAA, you may face a tax charge. This is calculated by adding the amount you have exceeded the MPAA by to your taxable income for that year. The amount of tax you are charged is likely to be roughly equivalent to the excess tax relief you benefited from.

Q: How much can I take out of a pension and avoid the MPAA?

You can take out up to 25% tax-free cash from your pension, subject to the maximum £268,275, and avoid triggering the MPAA.

Q: Is the MPAA gross or net?

The £10,000 MPAA is for gross contributions. Providing your income is greater than £10,000, this means you can make a personal contribution of £8,000 and it will be topped up by £2,000 tax relief.

Q: How does triggering the MPAA affect my annual allowance in the current year?

From the point where you trigger the MPAA, you can pay a further £10,000 into your pension over the rest of that tax year, providing you have earnings of at least £10,000. However, your contributions for that tax year as a whole will also be measured against your previous annual allowance of up to £60,000.

Learn what the MPAA is, how it works, and what triggers it.

Taking a pension income may trigger the MPAA, which reduces the amount you can contribute to your pension each year.

What is the MPAA?

The MPAA (Money Purchase Annual Allowance) is a reduction in the amount you can contribute to your pension each year.

Once you have begun to withdraw a taxable income from your pension, you may trigger the MPAA. The maximum amount you can contribute to your pension is reduced to the lower of £10,000 gross per tax year and your annual income (down from the usual £60,000 annual allowance).

What are the MPAA rules and how does it work?

The MPAA is triggered when you withdraw income from a defined contribution pension scheme, not including any tax-free lump sums you are entitled to.

It is designed to limit the amount you can benefit from tax relief after retirement. If you exceed the MPAA, you may face a tax charge.

What triggers the MPAA?

The MPAA will be triggered if you:

Move your pension pot into flexi-access drawdown and start to withdraw a taxable income.
Take a lump sum (UFPLS - Uncrystallised Funds Pension Lump Sum)

How can I retain my current annual allowance?

It is important to note that the MPAA is not triggered in all circumstances where you access your pension. You will not trigger the MPAA if you:

Take up to 25% of your pension as a tax-free lump sum.
Take your tax-free lump sum and buy a lifetime annuity (that can stay level or increase)
Receive benefits from a defined benefit pension scheme.

Money Purchase Annual Allowance FAQs

What happens if I exceed the MPAA?

How much can I take out of a pension and avoid the MPAA?

Is the MPAA gross or net?

How does triggering the MPAA affect my annual allowance in the current year?

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Please remember, SIPPs are aimed at people happy to make their own investment decisions. Investment value can go up or down and you could get back less than you invest. You can normally only access the money from age 55 (57 from 2028). We recommend seeking advice from a suitably qualified financial advisor before making any decisions. Pension and tax rules depend on your circumstances and may change in future.