Money purchase annual allowance

What is the MPAA?

The MPAA was introduced as part of the Pension Freedoms in 2015. It limits how much tax relief you can receive on any contributions you make after you’ve started flexibly drawing your pension. Money purchase restrictions only apply to contributions you make to a defined contribution pension and do not affect defined benefit pensions.

Whenever you pay money into your pension you receive tax relief from the government on your contributions. The annual contribution limit is currently set at ^{_annual_allowance} and includes money you pay into your pension, tax relief and any payments made by third parties, such as your employer (^{_current_tax_year_yyyy_yy}). However, once you begin accessing your defined contribution pension flexibly, the money purchase annual allowance is activated and reduces your annual allowance. The money purchase annual allowance is currently ^{_money_purchase_annual_allowance}.

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Money purchase annual allowance explained

To trigger the pension money purchase annual allowance you must begin taking money out of your pension as a flexible income from the age of 55 or above (57 from 2028).

It only applies in certain circumstances when you:

• withdraw your entire pension pot as a lump sum, either in one or ad-hoc instalments;
• move your pension into flexi-access drawdown and begin drawing an income;
• purchase a flexible annuity; or
• exceed the withdrawal limit for a ‘capped drawdown’ plan.

You’ll usually be exempt from the MPAA pension limits if you:

• only withdraw a lump sum and don’t exceed your ^{_corporation_tax} tax-free entitlement.
• use your pension to purchase a lifetime annuity.
• cash in a small pension pot valued at less than ^{_money_purchase_annual_allowance}.*

*Please note that all payments made from your PensionBee account are paid under flexi-access drawdown and any amount over your ^{_corporation_tax} tax-free entitlement would trigger the MPAA in this scenario. You can find out more in our Terms.

If you exceed the money purchase pension plan contribution limits you will face a tax charge in line with your marginal rate of income tax. Usually when you make contributions to your pension, you have the option of using the carry forward rule which enables you to claim any tax relief you haven’t used in the previous three tax years. If you are subject to the money purchase annual allowance you’re unable to carry forward any annual allowance.

Remember, the money purchase annual allowance ^{_money_purchase_annual_allowance} won’t take effect until you start drawing the taxable part of your pension. Until then the annual contribution limit of ^{_annual_allowance} (^{_current_tax_year_yyyy_yy}) will apply.

How does drawdown work?

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With PensionBee, you’ll be able to track how your funds are performing through our online dashboard. Once you reach your pension age (currently 55, rising to 57 in 2028) you can make a withdrawal. You’ll need to verify your identity using our Facial Similarity Check (FSC) process. If all your bank details and identity are successfully verified, it usually takes around 10 working days for you to receive your money. Taxable withdrawals can only be made once a month. This means you’ll need to plan your withdrawals carefully to stay within this limit.

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Risk warning

As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.

Last edited: 06-04-2025