What is the money purchase annual allowance, and when does it bite?
The money purchase annual allowance caps what you can put into defined contribution pensions at £10,000 a year once you have flexibly accessed a pension, down from the standard £60,000. It is permanent, it removes carry-forward entirely, and which withdrawals trigger it is far narrower than most people assume.
- The cut: £60,000 to £10,000 for defined contribution contributions, from the moment it is triggered.
- The trigger: taking taxable income through flexi-access drawdown or an UFPLS, not tax-free cash alone.
- No carry-forward: unused allowance from earlier years cannot be used against the £10,000.
- Defined benefit: accrual is unaffected; the alternative annual allowance still applies to it.
Where the AI summary above gets this wrong
"If you access your pension pot, your annual allowance drops to £10,000 under the money purchase annual allowance."
That's surface-true. Here's what it misses:
- Taking tax-free cash alone does not trigger it — moving a pot into drawdown and taking only the 25% lump sum leaves the full £60,000 allowance intact, which is the whole basis of phased drawdown
- Buying a lifetime annuity does not trigger it — nor does taking a defined benefit pension, so a large group of people who have 'accessed a pension' still have their full allowance
- It is permanent and kills carry-forward — the summary implies a reduction, not the loss of up to three years of unused allowance, and that second part is usually the more expensive half
01 What the allowance is and what it costs
The money purchase annual allowance limits contributions to defined contribution pensions to £10,000 in a tax year, replacing the standard £60,000 annual allowance for those contributions once it has been triggered. Contributions above it attract an annual allowance charge at your marginal rate, which cancels the tax relief that made the contribution worth making.
Two features make it more expensive than the headline. It is permanent — there is no route back to £60,000 once triggered, whatever you do afterwards. And it removes carry-forward for money purchase contributions entirely, so up to three years of unused allowance that would otherwise have been available disappears at the same moment.
Defined benefit accrual is untouched. Someone still building a final salary pension keeps that accrual under a separate alternative annual allowance, so triggering the MPAA does not stop a public sector career pension growing.
02 What triggers it, and what does not
The trigger is taking taxable income flexibly. Drawing income from flexi-access drawdown triggers it. Taking an uncrystallised funds pension lump sum triggers it, on the whole payment, because 75% of an UFPLS is taxable. Taking more than the permitted maximum from a pre-2015 capped drawdown arrangement triggers it.
What does not trigger it is the longer and more useful list. Taking the 25% tax-free cash and moving the rest into drawdown without drawing income does not. Buying a lifetime annuity does not. Taking a defined benefit pension does not. Taking a small pot lump sum under the £10,000 small-pots rule does not. Cashing a trivial commutation lump sum from a defined benefit scheme does not.
That distinction is what makes phased access a real strategy rather than a technicality. Someone at 55 who needs a lump sum can crystallise, take the tax-free cash, take no income, and keep contributing £60,000 a year. Someone who takes £1 of taxable income out of the same pot on the same day is capped at £10,000 for the rest of their life.
03 Living with it once it is triggered
If the MPAA applies, the £10,000 includes tax relief and employer contributions, which is the detail that catches employees. Someone on a workplace scheme with a generous employer match can exceed £10,000 without making a single voluntary contribution, and the charge falls on them rather than on the employer.
The planning response is to check before drawing rather than after. Anyone still working, still contributing, and thinking about taking pension income should establish what their total annual contributions are first, because the sequence matters more than the amounts: contributions made before the trigger are tested against £60,000, and everything after is tested against £10,000.
Shows: how much of your annual contributions would exceed the money purchase annual allowance, and what the charge costs at your marginal rate. Ignores: defined benefit accrual, whether the MPAA has actually been triggered, carry-forward from earlier years, and the scheme-pays route.
On the defaults above, the worked example shows £3,200. £8,000 over the allowance, taxed at 40% — the relief on that slice is cancelled out.
Source: Who must pay the pensions annual allowance tax charge
The MPAA is the one pension rule I would put in front of anyone under 60 who is about to take money out of a pot while still earning. Not because £10,000 is stingy, but because it is permanent and because it takes carry-forward with it — and carry-forward is what people rely on when a bonus or a business sale lands three years later. If you need cash from a pension and you are still contributing, take the tax-free cash and leave the taxable income alone. That single sequencing choice is worth more than most of the fund-selection decisions people agonise over.
FAQ
Does taking my 25% tax-free cash trigger the MPAA?
No. Crystallising a pot and taking only the pension commencement lump sum leaves your full annual allowance intact. The trigger is taxable income taken flexibly — drawdown income or an UFPLS — so the tax-free cash on its own is safe.
Can I get my £60,000 allowance back later?
No. The money purchase annual allowance is permanent once triggered. Stopping withdrawals, returning money, or changing provider makes no difference, which is why the decision is worth taking deliberately rather than discovering afterwards.
Does the £10,000 include my employer's contributions?
Yes. The allowance is tested against total contributions to defined contribution schemes including employer payments and the tax relief added at source, so a generous workplace match can breach it without any voluntary contribution at all.
Sources
Regulator references
- Annual allowance on pension savings · GOV.UK · 2025The annual allowance, the money purchase allowance and how they interact.Last verified: 2026-09-07
- Tax on your private pension contributions · GOV.UK · 2025The relief, allowance and charge framework the whole post sits inside.Last verified: 2026-09-07
- Who must pay the pensions annual allowance tax charge · HM Revenue and Customs · 2025When the charge falls on the individual and when the scheme can pay it.Last verified: 2026-09-07
Calculator unit tests · the assertions this page's worked example is checked against, and their last result
Changelog
- 2026-09-07 — initial publish (new format)
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Jordan Reeves
Founder of Talk Through Wealth. A software engineer for over a decade before turning to retirement planning, Jordan built the projection engine after watching family members get fragmented, country-by-country advice that never reconciled. He writes about retirement the way the engine computes it: month-by-month, lifetime-long, and skeptical of any rule of thumb that hasn't been run through the math.