The contributions you make in a tax year count towards the annual allowance for that tax year.
If you've already taken some of your retirement savings, your future pension contribution limit may be restricted to the money purchase annual allowance.
Tax rules depend on your individual circumstances and could change in the future.
Money purchase annual allowance
What is it?
The money purchase annual allowance (MPAA) is lower than the annual allowance and it may apply if you choose to flexibly access your retirement savings from 6 April 2015. The government introduced the MPAA to make sure there’s no room to abuse the tax relief that can be claimed on any new pension contributions by those who have taken some or all of their retirement savings.
How does it work?
If you choose to access your retirement savings flexibly, certain payments will trigger the MPAA. This means your annual allowance for contributions into defined contribution arrangements would be reduced from £40,000 to £4,000 a year.
What triggers the MPAA?
- If you choose to take an income from a flexi-access drawdown plan set up from 6 April 2015.
- Taking a full or partial cash lump sum from your plan.
- Taking an income above the maximum limit from an existing capped drawdown plan.
- Receiving a one-off lump sum if you’re entitled to enhanced protection with protected tax-free cash of more than £325,000.
What won't trigger the MPAA?
- Taking your 25% tax-free cash sum.
- Cashing in small pots.
- Taking an income from a capped income drawdown plan that’s within the maximum limits.
- Additional designation from an existing capped income drawdown plan.
- Buying a secure income.
What do I need to do if the MPAA is triggered?
We'll let you know within 31 days of the MPAA being triggered.You'll have 91 days to inform all pension plans you’re contributing to that the MPAA has been triggered. If you join any new pension plans, you’ll have a responsibility to let them know.
What about defined benefit pension plans?
If you're a member of a defined benefits scheme and you've triggered the MPAA, the £40,000 annual allowance still applies to your total contributions/accrual. However, within your total £40,000 annual allowance, the maximum you can pay into any defined contribution plans will be £4,000 before a tax charge applies.We recommend you speak to a financial adviser if you think this applies to you.
There's a limit to the amount you can have built up in any pension plan when you start taking your retirement savings. It's set by the government and it's called the lifetime allowance. If you exceed this limit, you may be subject to a lifetime allowance charge.