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2.5 MPAA Money Purchase Annual Allowance
The MPAA can limit your ability to rebuild pensions after taking income. Learn how it works, what triggers it, and how to avoid tax traps.
2.5 Money Purchase Annual Allowance (MPAA)
Accessing your pension flexibly can come with a hidden catch: the MPAA. This reduced allowance can significantly limit future pension contributions — and many people trigger it without realising. This chapter explains how it works, when it applies, and how to avoid it.
What Is the MPAA?
The Money Purchase Annual Allowance is a reduced limit on how much you can contribute to defined contribution (DC) pensions after you’ve started taking income from them.
- Standard annual allowance: £60,000 (as of 2024/25)
- MPAA: £10,000 (was £4,000 before April 2023)
- It only affects DC contributions
- You do not get a carry forward facility once MPAA applies
What Triggers the MPAA?
You only trigger the MPAA if you flexibly access a DC pension. See the summary table below for further detail.
Once triggered, MPAA applies from the start of that tax year.
What Counts Toward the MPAA?
- Only money purchase (DC) contributions
- Employer + employee + third-party contributions
- Does not restrict DB (defined benefit) scheme accruals — though hybrid rules may apply if you’re in both
Why the MPAA Matters
The MPAA can:
- Block you from rebuilding your pension later if you return to work
- Catch people unaware — especially early retirees or part-time workers
- Trigger a tax charge if exceeded
Once triggered, the MPAA is permanent — it cannot be undone or reset.
Planning Tips to Avoid or Manage the MPAA
- Delay flexible access unless absolutely necessary
- Consider using ISAs for early retirement spending instead
- If taking 25% tax-free cash, leave the rest untouched to avoid triggering
- Keep a record of trigger dates and provider notifications
If you have triggered the MPAA, plan future contributions carefully to avoid tax charges — especially if returning to work.
Summary Table — MPAA at a Glance
Next .. Part 3
We’ll explore how to access your pensions — the different options for drawing income or lump sums from Defined Contribution and Defined Benefit schemes.
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