If you've already started accessing your pension flexibly, your annual allowance may be reduced. Here's what you need to know about the MPAA.
What is the MPAA?
The Money Purchase Annual Allowance is a reduced annual allowance that applies once you've accessed your pension flexibly. It limits the amount you can contribute to defined contribution pensions (like a SIPP) with tax relief.
The MPAA limit
The MPAA is £10,000 per year – significantly lower than the standard £60,000 annual allowance.
What triggers the MPAA?
The MPAA is triggered when you:
Take income from a pension via flexi-access drawdown
Take an uncrystallised funds pension lump sum (UFPLS)
Receive payments from a flexible annuity
The MPAA is NOT triggered if you only:
Take your 25% tax-free lump sum (without starting drawdown)
Buy a lifetime annuity
Take a small pots payment
Once triggered, it's permanent
Once you've triggered the MPAA, it applies for the rest of your life. You cannot go back to the full annual allowance. This is why it's important to consider the implications before accessing your pension flexibly.
Carry forward
Once the MPAA is triggered, you can no longer use carry forward for money purchase (defined contribution) pension contributions.
Planning tip
If you're thinking about accessing your pension while still working and contributing, consider the impact of the MPAA on your future saving. You may want to seek financial advice before making a decision.
Still need help?
If you have questions about the MPAA, contact us at hello@joinchest.com. For specific tax advice, we recommend speaking to a tax adviser.