What is the pension’s Money Purchase Annual Allowance?
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The Money Purchase Annual Allowance (MPAA) is a pension rule designed to prevent individuals from gaining double tax relief on pension contributions. It targets situations where someone withdraws money from their defined contribution pension pot and then reinvests it, effectively receiving tax relief on the same funds twice.
The normal annual pension contribution limit is currently £60,000. However, once the MPAA is triggered the pension contribution limit is significantly reduced to the MPAA cap of £10,000 per year.
The MPAA is triggered when you start accessing your pension flexibly, such as by:
- Withdrawing your entire pot as a lump sum (in full or in part).
- Moving into flexi-access drawdown and taking income.
- Buying a flexible annuity.
- Exceeding withdrawal limits under a capped drawdown plan.
It does not usually apply if you:
- Only withdraw up to a 25% tax-free lump sum allowance.
- Buy a lifetime annuity.
- Cash in a small pension pot of less than £10,000.
If applicable, the reduced pension allowance can affect future retirement planning and needs to be considered before making any pension withdrawals.
