What is the Money Purchase Annual Allowance?

By Andy Pardoe, Compliance Officer at Anstee & Co. 

If you are a UK taxpayer, when you pay into your pension you will get tax relief on your contributions up to £40,000 a year or 100% of your earnings, whichever is the lower. However, if you have started taking money from a defined contribution pension scheme, the amount you can pay into your pension and still receive tax relief significantly reduces. This is known as the Money Purchase Annual Allowance (MPAA) and is currently £4,000 for the tax year 2019-20.

The MPAA only applies to defined contribution pension schemes and not defined benefit pension schemes.

What events will trigger the MPAA?

The following events will normally trigger the MPAA:

• If you take your whole pension pot either as a lump sum or in bite-size chunks.
• If you transfer your pension pot into a flexi-access drawdown plan and start to take an income.
• If you use your pension pot to buy an investment-linked or flexible annuity where your income could go down.
• If you have a capped drawdown plan and you wish to take more income than the cap.

The following events will not normally trigger the MPAA:

• If you cash in your pension valued at less than £10,000 using the small pots rule.
• If you take a tax-free cash lump sum and place the rest of your pension pot into a flexi-access drawdown plan without taking any income.
• If you take a tax-free cash lump sum and use the remainder to buy a lifetime annuity providing an income which will either stay the same or increase.

How Anstee & Co can help you with your pension planning.

If you are planning to access your pension pots whilst still wishing to make pension contributions, or just wish to know more about the Money Purchase Annual Allowance in general, why not arrange a meeting to find out more. The initial fact-finding meeting is at our cost and without obligation.

We are a firm of Independent Financial Advisers (IFA’s). This means that the advice we offer is unbiased. We will look at all the financial options open to you from the “whole of market”. Our offices are located at-

• Kettering, Northamptonshire
• London, Pall Mall, Greater London
• Stamford, Lincolnshire

Finally, our financial planners live and make use of meeting rooms in-

• Market Harborough, Leicestershire
• Bedford, Bedfordshire
• Northampton, Wellingborough, Towcester and Brackley in Northamptonshire.

Remember that we are here to help you design your financial future.