Money Purchase Annual Allowance and Defined Benefit Pensions

Published / Last Updated on 23/10/2019

Does the Money Purchase Annual Allowance affect Defined Benefit Pension Schemes?

Annual Allowance: You and your employer comboned can pay up to £40,000 a year (or 100% of your salary) into a pension scheme and get tax relief on contributions.

Money Purchase Annual Allowance or MPAA:  if you start to take money from a defined contribution pension, the amount you can pay into a pension and still get tax relief reduces - MPAA.

MPAA does not apply if:

  • Take a tax-free cash lump sum and buy a lifetime annuity
  • Take a tax-free cash lump sum only flexible drawdown scheme
  • but don’t take any income from it
  • Cash in a whole 'small pension pot' worth £10,000 or less

MPAA applies to defined contribution pensions only and not defined benefit pensions.

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