Money Purchase Annual Allowance (MPAA) Explained
If you flexibly take taxable money from a defined contribution pension, the Money Purchase Annual Allowance — usually shortened to the MPAA — reduces the amount you can continue paying into a pension tax-efficiently. For the 2026/27 tax year the MPAA is £10,000, which is far lower than the standard £60,000 annual allowance and can catch out anyone who has already dipped into their pension while still working or contributing.
The UK's pension freedoms, introduced in April 2015, gave defined contribution savers a great deal of flexibility over how and when to take their pension. With that flexibility came a trade-off: once you start taking taxable income from a DC pension, the amount you can continue paying in each year is reduced through the MPAA.
The MPAA matters most to people who plan to keep working, keep receiving employer contributions, or top up their pension after taking some income. It can also affect those who took a flexible withdrawal earlier in their career and have since returned to work. Because the limit is much lower than the standard annual allowance, it is important to understand which actions trigger it before you make any decisions about accessing your pension.
This article explains how the MPAA works, what triggers it, what doesn't, and the points to think through before you take taxable income from a defined contribution pension.
In this article
Quick Summary
This may help you:
- You are still working or contributing to a pension after age 55
- You are considering drawdown, UFPLS or flexible income from a DC pension
- You have already taken taxable money from a pension and are unsure if the MPAA applies
- You want to maximise pension contributions before retirement
Before deciding, check:
- Whether the way you plan to access your pension would trigger the MPAA
- Whether tax-free cash alone could meet your need without restricting future contributions
- Whether your existing employer pension contributions would exceed £10,000 a year
- Whether regulated financial advice may be appropriate before drawing income
Part of the Taking Pension Income series
- How To Take Pension Income In Retirement
- Pension Drawdown Explained
- How Pension Withdrawals Are Taxed in the UK
- Pension Tax-Free Cash Explained: Should You Take Your 25%?
- Annuity vs Drawdown Explained
- Money Purchase Annual Allowance (MPAA) Explained
- UFPLS Explained: Taking Your Pension as Lump Sums
- The Small Pots Rule Explained: Cashing In Small Pension Pots
- Sequence of Returns Risk in Retirement Explained
- Equity Release Explained: Lifetime Mortgages and Later-Life Borrowing
- Pension Tax-Free Cash Recycling Rules Explained
What is the Money Purchase Annual Allowance?
The Money Purchase Annual Allowance is a reduced limit on the amount that can be paid into your defined contribution pensions while still receiving tax relief. For the 2026/27 tax year it is set at £10,000, compared with the £60,000 standard annual allowance that applies to most savers.
The MPAA covers all contributions to DC pensions — your own contributions, your employer's contributions and any third-party payments such as those made by a spouse on your behalf. It applies year-by-year to the total of those contributions across every DC scheme you have.
If you continue building up benefits in a defined benefit (DB) scheme, those benefits are measured against an "alternative annual allowance" of £50,000 for 2026/27 (the standard £60,000 less the £10,000 MPAA). If your total pension input exceeds the relevant limits, an Annual Allowance Charge becomes due on the excess at your marginal rate of income tax.
What triggers the MPAA?
The MPAA is generally triggered when you flexibly access taxable income from a defined contribution pension. Common trigger events include:
- Taking any taxable income through flexi-access drawdown
- Taking an Uncrystallised Funds Pension Lump Sum (UFPLS)
- Buying a "flexible" annuity where the income can reduce
- Taking income above the maximum permitted level under a pre-2015 capped drawdown arrangement
- Taking certain stand-alone lump sums
Once one of these events happens, the MPAA applies from the day after the trigger and continues every tax year thereafter.
What does not trigger the MPAA?
Some pension activities preserve the full standard annual allowance. These include:
- Taking only the tax-free cash element of your pension (commonly up to 25%, subject to the Lump Sum Allowance of £268,275)
- Buying a lifetime annuity that does not reduce
- Continuing in capped drawdown without taking income above the Government Actuary's Department (GAD) limit
- Withdrawing very small pots under the small pots rules (subject to specific conditions)
If preserving the £60,000 annual allowance matters to you, choosing a route that does not trigger the MPAA can be an important planning decision.
How does the MPAA affect tax relief and contributions?
Once triggered, the MPAA limits the total annual contributions to DC pensions to £10,000. Any contributions above this amount lose tax relief and are subject to the Annual Allowance Charge at your marginal rate of income tax.
Your provider must issue you a "flexible access statement" within 31 days of the trigger event. You then have 91 days to inform the providers of any other DC pensions you hold so that they can apply the MPAA correctly. Failing to notify other schemes can lead to administrative penalties.
It is also worth remembering that employer contributions count towards the £10,000 limit. For higher earners with generous workplace contributions, this can be a particularly tight cap.
How does carry forward interact with the MPAA?
Carry forward, which lets you use unused annual allowance from the previous three tax years, only applies to the standard annual allowance — not to the MPAA. That means once the MPAA is triggered, you cannot use unused allowance from earlier years to contribute more than £10,000 to DC pensions in any given tax year.
If you continue building DB benefits, you may still be able to use carry forward against the alternative annual allowance, but the rules are intricate and this is an area where specialist advice can help.
Practical points to consider before taking pension income
Before deciding to flexibly access your pension, it can be helpful to ask:
- Could the tax-free cash alone meet your current need?
- How much do you expect to contribute to pensions in the years ahead, including employer contributions?
- Will you continue working, taking on consultancy or running a business?
- Is there a way to phase access — for example, crystallising part of the pension while leaving the rest untouched?
- How might the MPAA interact with your overall retirement strategy and tax position?
For many people approaching retirement, the choice between drawing taxable income now and preserving the full £60,000 annual allowance is genuinely consequential. Speaking with a regulated financial adviser may be appropriate, particularly if you have a significant pension pot, multiple schemes, or plans to keep contributing.
For free, impartial guidance on the MPAA, see MoneyHelper's page on the Money Purchase Annual Allowance.
Key Considerations
| Factor | Why It Matters |
|---|---|
| Trigger event | Determines whether and when the MPAA starts applying to your DC contributions |
| £10,000 annual limit | Caps total DC contributions year-by-year once triggered |
| No carry forward | Unused MPAA cannot be carried into future years |
| Employer contributions count | Workplace contributions are included in the £10,000 limit |
| Tax-free cash only | Taking just the 25% tax-free cash usually preserves the standard allowance |
| Annual Allowance Charge | Excess contributions are taxed at your marginal income tax rate |
| Notification rules | You must inform other DC schemes within 91 days of a trigger event |
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Financial planning decisions depend on individual circumstances. If you would like clarity on how the topics discussed may apply to your situation, TrustEvo can connect you with a regulated financial adviser.
This article is provided for general information only and does not constitute financial advice. Financial decisions depend on individual circumstances and regulated financial advice may be appropriate in some situations.