What happens if you exceed the money purchase annual allowance

Once your client flexibly accesses a defined-contribution pot — taking an UFPLS, or drawing income from flexi-access drawdown — the money purchase annual allowance kicks in. From that point, the most they can pay into DC pensions with tax relief is £10,000 a year. (That’s the figure from 2023/24 onwards; it was £4,000 before.) Go over and an annual allowance charge follows. It’s worth slowing down here, though, because 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?

It’s a £10,000 cap, per tax year, on money-purchase (DC) contributions, running from the date of 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. And once it’s triggered, it sticks — it carries into every later year. (Whether it can ever switch off again is still an open question; our engine treats it as permanent.)

So what’s the charge if you go over?

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: the DC input over the £10,000 cap, plus any defined-benefit input over the alternative annual allowance (the standard allowance minus the MPAA, so £50,000).

The alternative figure is there for a reason: it catches DC saving over the cap even when the 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 £2,000 charge

Meet Dan. He triggered the MPAA last year, and this year £15,000 goes into his SIPP while his DB scheme adds £20,000 of input. Other income brings him to £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 income that £5,000 lands in the higher-rate band — £2,000. This is the case a default-only calculator 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 the default leg — £60,000 plus the £8,000 — but it can’t touch the MPAA. So the £32,000 of DC over the cap stands, the alternative figure comes out larger, and that’s what’s charged. At £150,000 of income it’s additional-rate, so £14,400. The thing to take away: carry forward survives an MPAA year perfectly well — it just has nowhere to attach on the DC side.

What if DC saving stays under £10,000?

Then there’s no MPAA charge on the DC side at all — the cap simply isn’t breached. DB accrual carries on being measured against the £50,000 alternative allowance. 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. Keeping DC contributions at or under £10,000 after the trigger is really the whole game — and the DB side still has its own £50,000 of room to work with.

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 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 £2,000 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.

PTM056500 · PTM056510 · FA 2004 ss.227B–227C — figures engine-computed against the 2025/26 config