The MPAA: The £10,000 Trap After Flexibly Accessing a Pension
Take flexible income from a pension and your money purchase annual allowance drops to £10,000 - permanently, with no carry forward.
What is the MPAA?
The money purchase annual allowance (MPAA) restricts contributions to money purchase (defined contribution) pensions to £10,000 a year once you have "flexibly accessed" a pension. It exists to stop people recycling pension withdrawals back in for a second round of tax relief.
What triggers it?
- Taking income from a flexi-access drawdown fund (not just the tax-free cash)
- Taking an UFPLS (uncrystallised funds pension lump sum)
- Certain payments from older capped drawdown arrangements that exceed the cap
What does not trigger it?
- Taking only your 25% tax-free lump sum and no drawdown income
- Buying a standard lifetime annuity
- Receiving a defined benefit pension
- Cashing in a small pot of up to £10,000 under the small pots rules
No carry forward – and no going back
Once triggered, the MPAA applies from the trigger date onwards and is permanent. Crucially, carry forward cannot be used against the MPAA – unused allowance from earlier years can't top up money purchase contributions beyond £10,000 (it can still be used for defined benefit accrual under the alternative annual allowance rules).
Common mistakes
- Dipping into a pension "just once" at 55+ while still working – then discovering future employer contributions are capped
- Not telling other pension providers within 91 days of triggering the MPAA (there are penalties for failing to do so)
- Assuming tax-free cash alone caused the problem – or that it didn't, when income was also taken
- Salary-sacrifice arrangements quietly breaching the £10,000 limit
Bottom line: if you're over 55 and might want to contribute meaningfully to a pension again – or your employer does – take advice before touching your pot. The order in which you access benefits can preserve your full £60,000 allowance.
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