What happens if you exceed the money purchase annual allowance

The money purchase annual allowance caps DC contributions once your client flexibly accesses a pot — taking an UFPLS, or drawing income from flexi-access drawdown. From the day after, DC input above £10,000 a year is exposed to an annual allowance charge: relief is still given, and the charge claws it back. (That’s the figure from 2023/24 onwards; it was £4,000 before.) But the charge isn’t simply “DC over £10,000 gets taxed”: HMRC works it out two ways and takes the bigger answer.

What is the MPAA, and what sets it off?

The MPAA is a £10,000 cap, per tax year, on money-purchase (DC) contributions, running from the day after a trigger event. The usual triggers are taking taxable income from flexi-access drawdown, or taking an UFPLS. Taking only tax-free cash, or a small-pot lump sum, doesn’t set it off. The trigger remains relevant in subsequent tax years (PTM056520); each year still needs the correct test for its pension inputs.

So what’s the charge if you go over?

When post-trigger DC input exceeds the MPAA, HMRC compares two figures and charges whichever is larger:

— the default chargeable amount: total pension input (DC + DB) over the full annual allowance plus any carry forward — exactly the test everyone else gets; and

— the alternative chargeable amount: post-trigger DC input over the £10,000 cap, plus other input (including DB and pre-trigger DC) over the alternative annual allowance (the annual allowance minus the MPAA — £50,000 here — plus any carry forward). FA 2004 s.227B(2) builds the alternative allowance from “the annual allowance for the year in the case of the individual (see sections 228(1) and 228A)”, and s.228A is carry forward; PTM056510 states it directly: “Any unused annual allowance that can be carried forward from the previous tax years is added to the alternative annual allowance”.

The alternative figure catches DC saving over the cap even when total input would have slipped under the ordinary allowance. Whichever figure is bigger gets taxed at your client’s marginal rate. The three cases below show how that plays out.

Case one: just over the cap — a £1,000 charge

Meet Dan. He triggered the MPAA last year. This year his employer pays £15,000 into his SIPP and his DB scheme adds £20,000 of input; Dan pays nothing in himself. His own net income is £25,000, so with the £35,000 of input counted his adjusted income is £60,000, and he has no carry forward.

Look at the default test first: nothing. £35,000 of total input sits well under the £60,000 allowance, so on that test there’s no charge at all. But the alternative test catches the £5,000 of DC saving over the £10,000 cap, and stacked on Dan’s £12,430 of taxable income that £5,000 stays inside the basic-rate band — £1,000. The £35,000 of input is already in his £60,000 of adjusted income (FA 2004 s.228ZA(4)), so the charge is worked from his £25,000 of net income, not from £60,000. This is the case a default-only test gets wrong: it reports zero, and zero is the wrong answer.

Case two: bigger numbers, and the alternative still wins — £14,400

Now someone further up. Sophia has triggered the MPAA too. This year she has £42,000 of DC input, £50,000 of DB input, income of £150,000, and £8,000 of unused allowance to carry forward.

Carry forward lifts both allowances the £8,000 can reach — the default leg (£60,000 plus the £8,000) and the alternative annual allowance on the DB leg (£50,000 plus the £8,000, so £58,000). What it can never lift is the £10,000 MPAA itself. So the £32,000 of DC over the cap stands whatever the carry forward, the alternative figure comes out larger, and that’s what’s charged. At £150,000 of income it’s additional-rate, so £14,400. Carry forward survives an MPAA year perfectly well — it just has nowhere to attach on the money-purchase side.

What if DC saving stays under £10,000?

Then use the default test of total pension input against the ordinary allowance, including any taper and carry-forward. There is no separate £50,000 DB test. Take Raymond: he triggered the MPAA in an earlier year, but this year he keeps DC input to £8,000 while his DB scheme adds £30,000.

Nothing to charge: Raymond’s total input is below the £60,000 ordinary allowance. Staying within the MPAA does not by itself guarantee no charge — larger total input or a tapered allowance can still produce a default chargeable amount.

The mistakes people make

Three come up again and again. The first is assuming carry forward can lift the £10,000 cap. It can’t — carry forward only ever helps the default leg (PTM056510) and the DB-side alternative allowance (PTM055100). The second is the mirror image: thinking the MPAA wipes carry forward out. It doesn’t — the unused allowance survives and is still available to both tests. The third is running only the default chargeable amount and stopping there; Dan’s case shows a real £1,000 charge that the default test on its own calls nil. And one more for the list: there’s no carrying forward of an unused MPAA — an unused £10,000 doesn’t roll into next year.

The MPAA calculator runs both legs — default and alternative — on your client’s figures, and the pension annual allowance calculator puts the MPAA alongside the taper and carry forward for the whole position. For the background on triggers and the carry-forward rules, see the MPAA article.

PTM056510 · PTM056520 · FA 2004 ss.227B–227C — figures engine-computed against the 2025/26 config