The Money Purchase Annual Allowance (MPAA) was introduced on 6 April 2015 and applies to individuals who have flexibly accessed their pension benefits. The allowance, originally set at £10,000, was reduced to £4,000 for the tax year 2017/18 and subsequent tax years.

This is the total amount that can be paid in a tax year to an individual's money purchase arrangements (as a combination of employer and individual contributions) without a tax charge applying.

Actions that will trigger the MPAA are:

  • Entering flexi-access drawdown and actually taking an income
  • Commencing flexi-access drawdown payments from an existing capped drawdown arrangement
  • Taking income above the maximum GAD limit from an existing capped drawdown arrangement
  • Taking an UFPLS (uncrystallised funds pension lump sum)
  • Being in flexible drawdown at any time before 6 April 2015 as a member
  • Taking a stand-alone lump sum from a money purchase arrangement where someone has primary protection and a protected tax-free lump sum greater than £375,000 at 5 April 2006.

The MPAA is triggered the day after any of the above events first occur, so contributions paid in to a scheme before that date, but in the same tax year will not be affected. However if contributions do exceed the MPAA no tax relief on the excess will apply and an annual allowance tax charge will be raised on the excess. In some instances, the annual allowance tax charge can be paid using the “scheme pays” method but only where the tax charge exceeds £2,000 and total pension inputs in the year have exceeded £40,000.

Unlike conventional allowances, unused MPAA in a tax year cannot be carried forward.