Individuals who have started drawing income from money purchase pensions (defined contribution pensions) may be faced with the Money Purchase Annual Allowance (MPAA).  Introduced from 6 April 2017,  the MPAA restricts the amount  that you can save in your pension and receive tax relief.

In the tax year 2019-20, if you start to take money from your money purchase pension, this can trigger a lower annual allowance known as the Money Purchase Annual Allowance or MPAA.

For the tax year 2019-20 the MPAA is £4,000.

There are some complicated rules about whether the MPAA applies.  This depends on how you access your pension pot.   To try and simplify the rules the following points are a basic guide.

The main situations when you’ll trigger the MPAA are:

  • if you take your entire pension pot as a lump sum or start to take ad-hoc lump sums from your pension pot
  • if you put your pension pot money into a flexible income product (also known as pension drawdown) and start to take income
  • if you buy an investment-linked or flexible annuity where your income could go down
  • if you have a pre-April 2015 capped drawdown plan and start to take payments that exceed the cap.

You won’t normally trigger the MPAA if you:

  • take a tax-free cash lump sum and buy a lifetime annuity that provides a guaranteed income for life that either stays level or increases
  • take a tax-free cash lump sum and put your pension pot into a flexible income product (also known as pension drawdown) but don’t take any income from it
  • cash in small pension pots valued at less than £10,000.

You can’t carry over any unused MPAA to another tax year.

The MPAA does not apply to contributions to defined benefit pension schemes.


Disclaimer:  This article should not be taken as being pensions advice and is purely a guide to the tax rules.  Any pensions advice should be obtained from a qualified financial adviser.