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What is the MPAA?

Matthew Sinclair APFS
Chartered Financial Planner
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Past performance is no guide to future returns. Your investments can go down as well as up, so you could get back less than you originally invested. The content on this website is for educational purposes only, and should not be taken as personal advice.

Please Note: The 2023 Spring Budget changed pension allowances significantly - we have since updated the below blog post to reflect these changes.

There’s a lot of technical jargon in the financial services industry and this can sometimes be confusing for people who want to understand their retirement options. The Money Purchase Annual Allowance is often abbreviated to the MPAA.

I’ll explain what the MPAA is and how it may affect you, and we’ll jump right in with the question:

What is the Money Purchase Annual Allowance?

Generally, the total amount you can contribute into a defined contribution pension is £60,000 in a tax year.

This is the annual allowance, and this £60,000 figure includes tax relief and any contributions made by your employer. If you take any taxable income from your pension, you trigger the Money Purchase Annual Allowance, and this £60,000 figure reduces to £10,000 per annum.

If you’re planning to contribute whilst working or make further pension contributions, triggering the Money Purchase Annual Allowance could have a detrimental impact on your ability to save more for the future and for your retirement.

The MPAA takes effect from the day after you’ve taken your benefits. This means any contributions you’ve made before in the same tax year aren’t affected. Anything going forward will be affected.

With the Annual Allowance, you can use previous three tax years' unused allowances, which should increase the £60,000 figure to £240,000. With the MPAA, this doesn’t allow you to carry forward previous contributions that you haven’t used.

It’s also worth noting that the MPAA is applied to Defined Contribution pensions only, and not Defined Benefit pensions.

It might be possible for you to carry forward unused Annual Allowance to use for other Defined Benefit pensions.

If you’re unsure which type of pension you’ve got, get in touch with the scheme or the pension provider, or speak to a financial adviser who could help you.

How can I trigger the Money Purchase Annual Allowance?

  • If you take your entire pension pot as a lump sum, or if you start to take a lump sum or multiple lump sums from your pot, or if you move your pension pot into flexi-access drawdown and take a taxable income from it.
  • If you buy an investment-linked annuity where your income can drop, this will also trigger the Money Purchase Annual Allowance.
  • If you have a pre-April 2015 capped drawdown plan and you then take an income in excess of that cap, this would also trigger the MPAA.

What won’t trigger the MPAA?

The good news is if you take tax-free cash from a pension or you buy a lifetime annuity that provides a guaranteed income for the rest of your life but stays level, that won’t trigger the Money Purchase Annual Allowance.

If you cash a pension in via the small pots rule, for a pension of less than £10,000, that also won’t cause you to trigger the MPAA.

Why should I care about the Money Purchase Annual Allowance?

Sometimes people start withdrawing pension income while they’re still working, or while they’re planning to make more contributions. Generally, this is without really knowing what the Money Purchase Annual Allowance is.

These people could have a detrimental impact on their future ability to save more into retirement, and what that might mean to their retirement income going forward.

This usually happens when someone decides to partially retire and still continue in their job part-time, with the intention of building up further pension contributions.

It’s always worth discussing your options with a financial adviser before you commit to withdrawing an income from your pension, especially to make sure that you’re not missing something like the MPAA.

If you have any questions about the MPAA, or would like to suggest another topic for us to cover, please leave a comment below.

You can also get in touch with us at Wealth of Advice if you would like to talk more about the options available to you in retirement, and to get a proper plan in place. We specialise in helping people to reach their retirement goals. Give us a call on 0191 384 1009 or send an email to, and we’ll be in touch to help get you on track.

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