The money purchase annual allowance (MPAA)

The money purchase annual allowance (MPAA) is a reduced allowance that applies to defined-contribution pension input once a member has flexibly accessed a DC pot. It exists to stop people recycling tax-relieved contributions after drawing benefits.

The rule

The MPAA is triggered by specific events — most commonly taking income from a flexi-access drawdown fund, or an uncrystallised funds pension lump sum (UFPLS). Taking only a tax-free lump sum, or capped-drawdown income within the pre-2015 limits, does not trigger it.

Once triggered, DC pension input above £10,000 in a tax year (the figure from 2023/24; it was £4,000 before) attracts an annual-allowance charge. Two consequences catch people out: carry-forward of unused allowance cannotbe set against the MPAA, and the carry-forward you were relying on is effectively lost for DC input going forward. Defined-benefit accrual is tested separately against an “alternative annual allowance”.

That alternative annual allowance is the normal allowance less the MPAA — £50,000 once both stand at their current levels (£60,000 − £10,000). A member who has triggered the MPAA is therefore tested twice: DC input against the £10,000 cap, and any defined-benefit accrual against the £50,000 alternative allowance, with the taper still able to reduce the latter for high earners. The split is deliberate: it lets someone keep building defined-benefit pension while sharply limiting the recycling of tax-relieved cash back into a DC pot once they have started drawing on it — which is the abuse the MPAA exists to stop.

Worked example

A member triggers the MPAA, then pays £15,000 of DC contributions in 2025/26:

The common error

The classic mistake is to bring carry-forward to the rescue — applying three years of unused allowance to wipe out the excess over £10,000. You cannot: carry-forward does not apply to the MPAA. The second is using the old £4,000 cap. Either error understates the charge.

HMRC PTM056500 (money purchase annual allowance) · £10,000 from 2023/24 per Finance (No.2) Act 2023 · carry-forward interaction per PTM055100 / ADR-038.