What is the money purchase annual allowance?

A money purchase or defined contribution pension is one in which you build up a pot of money that you can use to provide an income in retirement. Unlike defined benefit schemes, which promise a specific income, the income you get will depend on factors including the amount you pay in and the fund’s investment.

The overall annual allowance still applies. So, if you also have a defined benefit scheme (this may be referred to as a final salary or career average scheme), you can continue to accrue benefits worth up to £60,000 a year in total, plus any unused allowance from the previous tax years, across all your pensions without facing tax charges. But the amount that is contributed to all your money purchase pensions must not exceed £10,000 or you’ll have to pay tax charges.

Read our guide to pension annual allowances and tapering

What triggers the MPAA?

If you start to flexibly access your pension, including your SIPP, you will trigger the money purchase annual allowance (MPAA). This allowance is £10,000.

This means you will only be able to contribute up to £10,000 to all money purchased pensions each year, including your pensions with AJ Bell. Additionally, it is not possible to make use of any unused contribution allowance (known as carry forward) from previous tax years to increase this amount.

How do I know if I will be affected by the MPAA?

You WILL be affected by this allowance when you:

• Take any benefits flexibly from your pension
• Exceed your income limit in capped drawdown
• Take an income payment after you have told your scheme administrator you want to move from capped drawdown to flexi-access drawdown
• Purchase a flexible annuity that allows income to decrease
• Have been taking flexible drawdown before 6 April 2015

You WILL NOT be affected by this allowance if you:

• Take a tax-free lump sum but no other income
• Continue to take income below your annual limit in capped drawdown
• Purchase a traditional lifetime annuity
• Take a lump sum or income as a beneficiary of someone else’s pension

Why choose an AJ Bell SIPP?

• As a FTSE 250-listed company, we’re one of the UK’s largest and most secure SIPP providers
• Trusted by over 762,000 customers, we offer exceptional value with low charges – from just £1.50 to trade and 0.25% annually to hold investments
• We’re here to help. Whether it’s over the phone, email or webchat, our friendly team will always be straight-talking and transparent