The money purchase annual allowance (MPAA) for pension savings

The money purchase annual allowance only affects you if you have a defined contribution pension that you’ve flexibly taken taxable money from.  

It’s a yearly limit on how much can be paid into your pension(s) and still be eligible for tax relief. The MPAA means: 

• your contributions must be less than (or equal to) the amount you earn and 
• contributions from you and your employer must be less than £10,000. 

Example: If you earn £5,000, you could pay up to £5,000 into your pension without paying tax (£4,000 of your money and £1,000 in tax relief). If you did this, your employer could contribute another £5,000.   

If you earn less than £3,600, you can get tax relief on up to £3,600 of pension savings until age 75 (£2,880 of your money and £720 in tax relief). 

The MPAA does not affect you if only have a defined benefit pension. These are often called final salary or career average schemes.  

But if you're paying into a defined contribution and a defined benefit pension, you qualify for the ‘alternative annual allowance’ as well as the MPAA.    

This means you can get tax relief on: 

• money paid into your defined contribution pension, up to the £10,000 MPAA limit and 
• annual growth of your defined benefit pension, up to your alternative annual allowance – the standard limit is £50,000.

Example: If you pay £10,000 into a defined contribution pension during a tax year, your defined benefit pension can grow by up to £50,000 before you need to pay tax.

If you don’t pay anything into a defined contribution pension, your defined benefit pension can grow by up to £60,000. 

This example assumes you qualify for the standard annual allowances. If you’re a high earner, you might have a lower limit. See our guide about tapered annual allowance for more information.  

The MPAA is triggered if you take taxable money out of a defined contribution pension using a flexible payment option.  

This usually means converting your pension money into income when you need it, and leaving the rest invested. Just taking up to 25% as a tax-free lump sum usually does not trigger the MPAA. 

The MPAA will normally be triggered if you: 

• start to take your pension as a series of lump sums 
• take a regular income using pension drawdown or from an investment-linked or flexible annuity, where the income isn’t guaranteed 
• take your entire pension in one go – unless it’s worth under £10,000 and you ask your pension provider to use small pot lump sum rules 
• exceed the cap on capped drawdown started before April 2015. 

The MPAA is usually not triggered if you: 

• take up to 25% of your pension as a tax-free cash lump sum and leave the rest invested, or use it to buy a guaranteed income from a lifetime annuity 
• take money from a defined benefit pension. 

If you have an additional voluntary contribution (AVC) scheme, ask your provider or the trustees whether it counts as a defined contribution or defined benefit scheme before taking money. If it’s defined contribution, the withdrawal might trigger the MPAA.   

There are many ways you can take money from your defined contribution pension scheme. Before taking money, it’s important to make sure you’ve considered which is best for you. 

Our guide explains your options for using your defined contribution pension pot.  

If you’re 50 or over, you can also get a free Pension Wise appointment. This will help you understand the different ways you can take your pension.   

Remember, if your choices trigger the MPAA and you want to continue saving into your pension, you’ll only get tax relief up to £10,000 a year. 

Your pension provider must tell you if you’ve triggered the MPAA. They’ll send you a flexible access statement within 31 days, or 91 days if you have an overseas pension. 

If you have multiple active defined contribution pension schemes (where money is still being paid in), you must tell all your pension providers that the MPAA has been triggered. To avoid a fine, you must do this within 91 days of: 

• receiving your flexible access statement or 
• joining a new defined contribution scheme.  

The MPAA starts the day after it’s triggered and resets at the start of each tax year (6 April). This means only future payments into your pension(s) are counted against the £10,000 limit. 

If you go over the MPAA, you won’t be entitled to tax relief on all your pension savings. This means you’ll need to pay Income Tax on the money that’s higher than the limit. This is called an annual allowance tax charge. 

You can use the calculator on GOV.UK to check if you have an annual allowance tax chargeOpens in a new window

The carry forward rules do not apply to the MPAA, so you cannot use unused annual allowance to reduce or cancel out the charge.

There are two ways to pay the annual allowance tax charge:

1. Ask your pension provider to pay on your behalf. This is called ‘scheme pays’ and means your pension benefits will be reduced.
   
   But your provider doesn’t always have to do this, including if the tax charge is less than £2,000. See Who must pay the pensions annual allowance tax chargeOpens in a new window on GOV.UK for the rules.
   
2. Pay the tax charge yourself.

Either way, you need to complete a Self Assessment tax returnOpens in a new window – this calculates how much you need to pay or tells HMRC your provider has already paid.

See our guide How to fill in a Self Assessment tax return for help with the process.

If you think you might be affected by the MPAA, consider getting advice from a regulated financial adviser. 

An adviser can help you understand: 

• how much your annual allowance is 
• your options to reduce the tax you might need to pay 
• how to pay any tax charges. 

Our tool can help you find a retirement adviser or see our guide  Choosing a financial adviser for more information.