What is the Money Purchase Annual Allowance?

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Kirsty Kerr

June 18, 2024

2 mins read

The Money Purchase Annual Allowance is a limit set by the government on the amount you can pay into your pension plan each tax year. Find out more about how it works and when it might impact you.

First, what is the Annual Allowance?

Every tax year, you have a limit on the amount you can pay into your pension pot and still get tax benefits on your payments. It’s called the Annual Allowance, and for the 2024/25 tax year, it’s £60,000. That includes any payments made into any of your pension plans by you, your employer or any third party.

So, what is the Money Purchase Annual Allowance?

Once you reach the minimum pension age (which is 55, or 57 from 6 April 2028), there are some things you could do that would trigger the Money Purchase Annual Allowance (MPAA). 

If you trigger the MPAA, your allowance will go down to £10,000 a year. It’s a big difference to be aware of if you want to keep paying into your pension plan.

When is the MPAA triggered?

There are a few ways you can trigger the MPAA: 

  • If you take an entire pension pot, either as a lump sum or by taking it in a few parts
  • If you move into drawdown and start taking taxable income from your plan (that’s anything over your 25% tax-free lump sum)
  • If you have a capped drawdown plan (this is a type of plan that was only available before April 2015) and you go over your agreed cap
  • If you buy a flexible or investment-linked annuity with your pension savings

You won’t trigger the MPAA if you:

  • Take some or all of your 25% tax-free lump sum
  • Cash in a ‘small pot’ worth less than £10,000
  • Purchase a guaranteed income for life (an annuity)

How did the MPAA change in the 2023 Spring Budget?

Previously, the MPAA was £4,000. But, hoping to encourage people to work longer or retirees to go back to work, the government increased it to £10,000 on 6 April 2023. This makes it much easier for you to keep working and saving into your pension plan once you’ve taken money from it, if you want to.

What happens if I pay in more than the MPAA?

If you’ve triggered the MPAA and you pay in more than £10,000 then you’ll need to pay a tax charge. The amount of tax you’ll pay will be calculated by adding the amount you’ve gone over by to your taxable income for the year – so you should only need to pay your normal rate of tax on it. You’ll need to declare this in a tax self-assessment.

Want to know more?

If you’ve got questions about how your specific circumstances might be impacted by the MPAA, it can be a good idea to speak to a financial adviser. If you don’t have one already, MoneyHelper has a useful guide to help you choose one to suit you. Or, from age 50, you can get free impartial guidance from Pension Wise, a service from MoneyHelper. Visit their website or call 0800 138 3944.

The information here is based on our understanding in June 2024 and shouldn’t be taken as financial advice.

Pension plans are investments. Their value can go down as well as up and could be worth less than was paid in.

Your own personal circumstances, including where you live in the UK, will have an impact on the tax you pay. Laws and tax rules may change in the future.

Standard Life accepts no responsibility for information in external websites. These are provided for general information.