Question 1

What is the Money Purchase Annual Allowance (MPAA)?

Accepted Answer

The MPAA is a reduced annual allowance of £10,000 that applies to defined contribution (DC) pension contributions once you have flexibly accessed your DC pension. It replaces the standard £60,000 annual allowance for DC contributions. The MPAA was introduced to prevent people from recycling pension withdrawals back into their pension to gain additional tax relief.

Question 2

What triggers the MPAA?

Accepted Answer

The MPAA is triggered when you take taxable flexible income from a defined contribution pension. This includes flexi-access drawdown (beyond the tax-free lump sum), uncrystallised funds pension lump sums (UFPLS), and taking income from a flexible annuity. Taking your 25% tax-free cash alone does NOT trigger it, nor does cashing in small pots (up to £10,000 from non-occupational schemes, limited to three payments).

Question 3

Is the MPAA permanent once triggered?

Accepted Answer

Yes. Once the MPAA is triggered it applies for life — it is completely irreversible. Even taking £1 of taxable flexible income from your DC pension triggers the MPAA permanently. This is why it is critical to understand the consequences before making any flexible withdrawal from your pension.

Question 4

What is the alternative annual allowance for defined benefit pensions?

Accepted Answer

When the MPAA is triggered, defined benefit (DB) pension accrual is tested against a separate 'alternative annual allowance' of £50,000, rather than the standard £60,000. The MPAA (£10,000 for DC) and the alternative AA (£50,000 for DB) cannot be combined — total contributions across both types cannot exceed £60,000 in any case.

Question 5

What happens if I exceed the MPAA?

Accepted Answer

If your DC contributions exceed the £10,000 MPAA, the excess is added to your taxable income and you pay an annual allowance charge at your marginal rate of income tax (20%, 40%, or 45%). Unlike the standard annual allowance, you cannot use carry forward from previous years to increase the MPAA — the £10,000 limit is fixed.

Has flexible access changed your pension limits?