What is the money purchase annual allowance?
If you've flexibly accessed your benefits, such as taken an uncrystallised funds pension lump sum (UFPLS) or taken income from a flexi-access drawdown fund, the Money Purchase Annual Allowance (MPAA) is the amount that can be paid in one year to your money purchase arrangements without a tax charge applying. For the current tax year, the MPAA is £10,000.
If the MPAA provisions apply to you, and during the year more than £10,000 has been paid to your money purchase arrangements under all of your registered pension schemes, a tax charge:
- will apply on the money purchase contributions above £10,000, and
- may apply on the value of any savings made to defined benefit arrangements that are higher than £50,000 plus any carry forward you have available.
Special rules apply in the year that the MPAA rules first applies to you. In that year, only money purchase contributions paid since the date that the MPAA first applies are tested against the MPAA. If:
- your money purchase contributions from the date the MPAA first applies to you until the end of that tax year are less than the MPAA for that year, the total of all of your pension savings are tested against the annual allowance for the year.
- your money purchase contributions from the date the MPAA first applies to you until the end of that tax year exceed the MPAA, your money purchase contributions prior to the MPAA applying to you, together with any defined benefit pension savings that are tested against the alternative annual allowance of £50,000.
Please speak to a financial adviser for more information.