Skip to the content

Individual Clients Workplace Pensions Professional Advisers

Money purchase annual allowance

Money Purchase Annual Allowance (MPAA)

Warning - this is complex but very important.

In order to stop people abusing some of the Pension Freedoms rules, the Government introduced a new rule to reduce the amount of money you can pay into your pension pot tax efficiently if you have taken cash or income from your pension in certain ways.

Normally you can get tax relief on pension contributions up to £40,000 a year or 100% of your taxable salary.

But if you take cash or income from your pension in the following ways you will be only be allowed to pay £ 4,000 per annum into your money purchase pension plans before you get hit by an extra tax charge.

You will trigger the MPAA if you
  • take your entire pension pot as a lump sum
  • take one or a number of lump sums (known as Uncrsytallised Funds Pension Lump Sum, UFPLS)
  • take flexi-access drawdown scheme and start to take an income
  • take income above the maximum limit from a ‘capped drawdown’ plan
You will not trigger the MPAA if you
  • take a tax-free cash lump sum and arrange a lifetime annuity
  • that provides a
  • take a tax-free cash lump sum and in a flexi-access drawdown plan but don’t take any income
  • cash in small pension pots valued at less than £10,000

What happens if you exceed the MPAA?

If you are subject to the MPAA, you will get a tax charge on any pension contributions to money purchase pensions which exceed the MPAA in a tax year. This is based on both contributions made by you, and on your behalf e.g. your employer.

Top Tip

If you want to take a cash sum of more than £10,000, (for example £ 15,000) see if you can take more than one payments becuase a cash sum of less than £10,000 will not trigger the MPAA.

For instance, two seperate payments of £7,500 will not trigger the MPAA. This will only work if your pension provider will allow this.

William Burrows

Offices in London, Northampton and Cardiff

Call: 07730 435 657

 

William Burrows / Retirement Intelligence Ltd
International House
24 Holborn Viaduct
London
EC1A 2BN
Better Retirement
400 Pavilion Drive
Northampton
NN4 7PA 

If you need help or advice - Contact us

As one of the most respected specialist retirement advisers, William Burrows and Better Retirement will be pleased to help you make the right decisions at any stage of your retirement journey.

Call or email now for a free and without commitment chat.

This website is run by William Burrows and publishes generic information on annuities, drawdown and other related retirement income matters. Any information you use is at your own risk and does not constitute financial advice.

If you require financial advice you will be advised by Better Retirement where William Burrows is authorised to give investment advice. Better Retirement Group Ltd is authorised and regulated by the Financial Conduct Authority, reference number 153420.