Money Purchase Annual Allowance (MPAA): Triggers, Limits & Reporting

The Money Purchase Annual Allowance is a reduced pension contribution limit that applies once you flexibly access a defined contribution pension. From the moment it is triggered, the amount you can pay into money purchase pensions each year while still receiving tax relief drops from £60,000 to £10,000, and the reduction is permanent. Everyday actions like taking a single taxable drawdown payment can be enough to cut your future saving capacity by more than 80%.

What Triggers the MPAA

Three actions cause the switch from the standard annual allowance to the MPAA. The most common is taking a taxable income payment from a flexi-access drawdown fund. Even a small taxable withdrawal fires the trigger, and it fires immediately before that first payment.¹

The second trigger is taking an Uncrystallised Funds Pension Lump Sum. With a UFPLS, you withdraw money straight from an untouched pension pot: 25% comes out tax-free and the remaining 75% is taxed as income. Because the taxable portion counts as flexible access, the MPAA kicks in immediately.

The third trigger is buying a lifetime annuity whose payments can decrease outside of prescribed circumstances. A standard level or increasing annuity will not trigger anything, but one with terms allowing the income to drop does.¹

Once any of these events occurs, the effect is permanent. There is no reset, no appeal, and no waiting period after which the full £60,000 allowance comes back. This is where most planning mistakes happen: someone takes a small drawdown payment to cover a short-term expense, not realising they have restricted their pension saving for every future year.

What Does Not Trigger the MPAA

Several payments look similar to the triggers above but are specifically excluded, and knowing them lets you access some pension money without losing your full allowance.²

Taking a pension commencement lump sum (the standard 25% tax-free amount) on its own does not activate the MPAA.
Withdrawing an entire pension worth £10,000 or less under the small pot rules avoids the trigger, provided you ask your provider to pay it specifically as a small pot lump sum.
Cashing in a pension as a trivial commutation lump sum is exempt.
If you were already in capped drawdown before 6 April 2015 and continue taking payments within the permitted maximum, the MPAA does not apply. Converting to flexi-access drawdown or exceeding the cap would trigger it.
Payments from a beneficiary’s flexi-access drawdown fund do not trigger the MPAA. Accessing a pension you inherited has no effect on your own contribution limits.
Becoming entitled to a scheme pension from a money purchase arrangement where at least 12 people are already receiving a scheme pension or dependants’ scheme pension is excluded.

The small pot exception is particularly useful for people with old, forgotten workplace pensions worth a few thousand pounds. You can cash those in without consequences for your main pension saving, as long as the provider processes the payment under the small pot rules.

How the £10,000 Limit Works

Once the MPAA is triggered, total contributions to all your defined contribution pensions cannot exceed £10,000 in a tax year while still receiving tax relief.³ That figure covers everything going into money purchase pots, including what your employer pays in. If you earn £30,000 and your employer contributes 5% (£1,500), you have only £8,500 of your own contributions left before hitting the ceiling.⁴

The employer contribution point is the one that trips up the most people. Auto-enrolment means many workers have contributions flowing into their pension without thinking about it. After triggering the MPAA, those employer payments eat directly into your £10,000 cap. If combined employer and employee contributions exceed the limit, you face a tax charge on the excess at your marginal income tax rate.⁵

There is no carry forward on the money purchase side. Under normal rules, you can carry unused annual allowance from the previous three tax years into the current year.⁶ The MPAA shuts that down. If you contribute only £3,000 to money purchase pensions this year, the remaining £7,000 is gone at the end of the tax year.

If You Also Have a Defined Benefit Pension

Triggering the MPAA when you have both types of pension creates a split system. Your money purchase contributions are capped at £10,000, but growth in your defined benefit pension is measured against a separate limit called the alternative annual allowance, currently £50,000.⁷

The two allowances work together so total pension growth across all schemes cannot exceed the standard £60,000. The formula is straightforward: the alternative annual allowance equals the standard annual allowance minus the MPAA (£60,000 minus £10,000 equals £50,000).⁸ Unused alternative annual allowance can still be carried forward from earlier years; unused MPAA capacity cannot.

This matters most for public sector workers and anyone still accruing defined benefit pension alongside a personal pension they have accessed flexibly. The DB side keeps its own generous allowance, while only the money purchase side faces the tight restriction.

High Earners and the Tapered Allowance

High earners already face a reduced standard annual allowance under the tapering rules, and this interacts with the MPAA. If your adjusted income exceeds £260,000, the £60,000 standard allowance reduces by £1 for every £2 above that threshold, down to a minimum of £10,000. If you have also triggered the MPAA, work out your tapered allowance first, then subtract £10,000 to get your alternative annual allowance.⁸

At the extreme end, someone whose taper has reduced the annual allowance to the minimum £10,000 would be left with an alternative annual allowance of zero once the MPAA is subtracted, meaning no defined benefit growth would be sheltered either.

Telling Your Other Pension Schemes

When you trigger the MPAA, your pension provider must send you a flexible access statement within 31 days of the triggering payment. The statement confirms that you have flexibly accessed your pension and explains what you need to do next.⁹

Once you have that statement, you are legally required to inform every other pension scheme where you are an active member. The deadline is 91 days from receiving the statement, or 91 days from joining a new scheme if that happens later.⁹ You do not need to notify schemes where you are only a deferred or pensioner member, just those where contributions are actively going in. Missing the deadline can result in financial penalties from HMRC. The obligation sits with you, not your providers, so keep track of every scheme you contribute to, including any new workplace pension you are auto-enrolled into later.

Reporting and Paying the Tax Charge

If your money purchase contributions exceed £10,000 in a tax year, you owe an annual allowance tax charge on the excess. You must report the charge to HMRC through the “Pension savings tax charges” section of your Self Assessment tax return, even if your pension provider pays all or part of the charge on your behalf. On a paper return, the relevant section is on form SA101.¹⁰ If you have never filed Self Assessment before, you will need to register with HMRC first.

The charge is calculated at your marginal rate of income tax. Someone in the higher-rate band pays 40% on the excess, and an additional-rate taxpayer pays 45%.

You can ask your pension provider to pay the charge directly from your pension pot through a process called scheme pays. Your provider must offer scheme pays if your tax charge exceeds £2,000 and your total pension savings with that scheme exceeded the annual allowance. If the charge is £2,000 or less, the provider can choose whether to offer it.¹¹ Where scheme pays is used, your pension pot is reduced by the amount of the charge, leaving less at retirement.

If you have to estimate figures because you have not received statements from all your providers, you can amend the return once the correct information arrives, provided you do so within 12 months of the statutory filing date.¹⁰

Planning Before You Trigger It

The most expensive pension mistake is an accidental one. Taking a single taxable drawdown payment to cover a car repair or a holiday can permanently cut your contribution limit by £50,000 a year. If you are still working and saving into a pension, the long-term cost of triggering the MPAA early can dwarf whatever short-term need prompted the withdrawal.

Before accessing any defined contribution pension flexibly, check whether the payment method you are choosing is on the trigger list. If you only need your 25% tax-free cash, take a pension commencement lump sum rather than a UFPLS. If you have a small old pot worth under £10,000, ask the provider to pay it as a small pot lump sum. These alternatives give you access to money without the MPAA consequences.

If you have already triggered the MPAA and are still enrolled in a workplace pension, review your combined contributions immediately. Employer auto-enrolment contributions count toward the £10,000 cap, and exceeding it by even a small amount creates a tax charge. Adjusting your employee contribution rate or opting out of additional voluntary contributions may be necessary to stay under the limit.

1
HM Revenue & Customs. Pensions Tax Manual – Annual Allowance: Money Purchase Annual Allowance: Trigger Events
2
HM Revenue & Customs. Pensions Tax Manual – Annual Allowance: Money Purchase Annual Allowance: Payments That Do Not Trigger the Money Purchase Annual Allowance
3
Legislation.gov.uk. Finance Act 2004, Section 227ZA – The Chargeable Amount
4
MoneyHelper. The Money Purchase Annual Allowance (MPAA) for Pension Savings
5
HM Revenue & Customs. Pensions Tax Manual – PTM056300 – Annual Allowance: Tax Charge: Who Pays
6
GOV.UK. Check if You Have Unused Annual Allowances on Your Pension Savings
7
GOV.UK. Pension Schemes Rates
8
GOV.UK. Work Out Your Allowances if You’ve Flexibly Accessed Your Pension
9
HM Revenue & Customs. Pensions Tax Manual – PTM051700 – Annual Allowance: Essential Principles: Information to Member
10
HM Revenue & Customs. Pensions Tax Manual – PTM056200 – Annual Allowance: Tax Charge: Telling HMRC
11
GOV.UK. Who Must Pay the Pensions Annual Allowance Tax Charge