If you have flexibly accessed a Defined Contribution (DC) pension on or after 6 April 2015 you do not get the standard £60,000 Annual Allowance (AA) and instead are subject to the Money Purchase Annual Allowance (MPAA) which is £10,000 from 6 April 2023.
The MPAA only applies to contributions to DC pensions and not Defined Benefit (DB) pension schemes.
The following actions trigger the MPAA:
- Taking your whole pension as a lump sum (unless the value is less than £10,000 and it is taken as a small lump sum)
- Taking a series of taxable lump sums from your pension
- Taking a tax-free cash lump sum from your pension and then taking income from a drawdown
- Exceeding the cap on your income if you have a capped drawdown plan
- Buying a flexible or investment-linked annuity with your pension that allows for a reduction in the income you receive
There are ways to take your pension without triggering the MPAA, some examples are as follows:
- Taking a pension pot with a value of less than £10,000 as a small lump sum
- Taking a tax-free cash lump sum and buying an annuity that provides a guaranteed income
- Taking a tax-free cash lump sum and setting up a drawdown arrangement but not taking any income from the scheme
If you trigger the MPAA, the total amount of DC contributions that you or your employer can make on your behalf while receiving tax relief is £10,000. If your contributions exceed this amount, you will have an annual allowance tax charge to pay on the excess. Unlike the AA, with the MPAA you are not able to carry forward any unused allowance from one tax year to the next.
You can find more information about the retirement options available by clicking here.
We will provide you with a Pension Savings Statement if the value of your benefits built up in the ABF Scheme have exceeded the AA over the tax year. We will also send a Pensions Savings Statement to anyone that is subject to the MPAA. Where a tax charge is payable, the statement provides the options available to you to pay this charge.