Money purchase annual allowance (MPAA) is a situation where individuals who have flexibly accessed their pension pot are subject to a reduced annual allowance for future pension savings. This typically occurs when someone has accessed their pension pot flexibly and triggers the Money Purchase Annual Allowance.
What triggers the Money Purchase Annual Allowance?
Flexibly accessing your pension pot, such as taking a lump sum, starting drawdown, or purchasing an annuity, will trigger the Money Purchase Annual Allowance.
What is the current Money Purchase Annual Allowance limit?
The current limit for the Money Purchase Annual Allowance is £4,000 per year.
Does the Money Purchase Annual Allowance apply to all pensions?
The Money Purchase Annual Allowance only applies to defined contribution pensions, where the value of the pension is dependent on how much has been paid in and how it has been invested.
Can you continue to contribute to an employer’s defined benefit scheme if you trigger the Money Purchase Annual Allowance?
Yes, you can continue to contribute to a defined benefit scheme without affecting your Money Purchase Annual Allowance.
What happens if you exceed the Money Purchase Annual Allowance?
If you exceed the Money Purchase Annual Allowance, you may have to pay tax on the excess contributions.
Is the Money Purchase Annual Allowance different from the normal annual allowance?
Yes, the Money Purchase Annual Allowance is a reduced annual allowance specifically for individuals who have flexibly accessed their pension pots.
Can you reset the Money Purchase Annual Allowance?
The Money Purchase Annual Allowance can be reset back to the standard £40,000 annual allowance under certain conditions, such as not flexibly accessing your pension for a consecutive three-year period.
Can you carry forward unused annual allowance if you trigger the Money Purchase Annual Allowance?
No, if you trigger the Money Purchase Annual Allowance, you cannot carry forward any unused annual allowance from previous years.
Do all withdrawals from a pension pot trigger the Money Purchase Annual Allowance?
Not all withdrawals trigger the Money Purchase Annual Allowance. It typically applies to flexible withdrawals from defined contribution pensions.
Are there any exceptions to the Money Purchase Annual Allowance?
Certain small pension pots and some types of annuity do not trigger the Money Purchase Annual Allowance.
Can you opt-out of the Money Purchase Annual Allowance?
Once you trigger the Money Purchase Annual Allowance, you cannot opt-out of it. You will be subject to the reduced annual allowance for future pension savings.
How does the Money Purchase Annual Allowance affect tax relief on pension contributions?
The Money Purchase Annual Allowance reduces the tax relief available on future pension contributions to £4,000 per year instead of the standard annual allowance of £40,000.