The Money Purchase Annual Allowance (MPAA) is a sharply reduced limit on how much you can pay into a defined contribution pension each year while still getting tax relief, once you've started flexibly accessing your pension. It catches many people who dip into their pension pot and then keep working and contributing without realising the limit has dropped.
The standard Annual Allowance vs the MPAA
Most people can pay up to the standard Annual Allowance (currently up to £60,000 or 100% of earnings, whichever is lower, tapering down for very high earners) into their pensions each tax year and get tax relief. Once you trigger the MPAA, that allowance drops dramatically — to a figure in the low thousands — for money purchase (defined contribution) pensions specifically, for the rest of your life.
What triggers the MPAA
- Taking an income via flexi-access drawdown (not just moving money into drawdown — actually withdrawing taxable income from it)
- Taking an uncrystallised funds pension lump sum (UFPLS), where part is tax-free and part taxable
- Taking more than the permitted amount from a "capped drawdown" arrangement set up before flexi-access drawdown existed
- Certain flexible annuity payments
What does NOT trigger it
- Taking only your 25% tax-free lump sum without touching the rest, or moving funds into drawdown without withdrawing an income from it
- Receiving a small pot lump sum (a specific rule for pots below a certain value, subject to limits on how many times you can use it)
- Continuing contributions to a defined benefit (final salary) pension — the MPAA applies to defined contribution pensions
- Buying a lifetime annuity that doesn't allow flexible income changes
Worked example
| Before triggering MPAA | After triggering MPAA | |
|---|---|---|
| Annual Allowance for DC pensions | Up to £60,000 (subject to earnings and tapering) | Reduced to a much lower fixed amount |
| Effect of exceeding it | Annual Allowance tax charge on the excess | Annual Allowance tax charge on the excess, at a much lower threshold |
| Example: still working part-time and drawing income | — | Continued employer + employee contributions can easily breach the reduced limit without either party realising |
Who this catches most often
The MPAA typically affects people who reduce their hours but don't fully retire — drawing some income from their pension to top up reduced earnings, while still working and having pension contributions paid on their behalf. If those ongoing contributions exceed the reduced MPAA limit, the excess triggers a tax charge that claws back the relief, even though the contributions were entirely legitimate on their own.
Common mistakes
- Not realising a small drawdown withdrawal has triggered the MPAA at all — providers must inform you, but it's easy to miss
- Continuing full pension contributions from a new job after triggering the MPAA in an old pension
- Confusing the MPAA with the standard Annual Allowance and assuming the higher limit still applies
- Not telling a new pension scheme that the MPAA already applies to you, so contributions aren't capped correctly
What to do next
If you're considering accessing your pension flexibly while still working and contributing, check whether the action you're about to take will trigger the MPAA, and if so, review your ongoing contribution levels against the reduced limit before it causes an unexpected tax charge.