What triggers the Money Purchase Annual Allowance (MPAA)?
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 £4,000 gross per tax year (down from the usual £40,000 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
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