What is the Money Purchase Annual Allowance in 2026/27?

Full answer

The Money Purchase Annual Allowance (MPAA) is a reduced annual allowance for pension contributions that kicks in once you have started taking flexible income from a defined contribution pension -- for example, through flexi-access drawdown withdrawals beyond the tax-free lump sum, or by fully cashing in a small pension pot. For 2026/27, the MPAA is £10,000, considerably lower than the standard £60,000 annual allowance available to those who have not yet accessed their pension flexibly. Once triggered, the MPAA applies specifically to contributions into defined contribution (money purchase) pension schemes -- it does not reduce the allowance available for any defined benefit (final salary) pension you might also be building up, which continues to use the standard annual allowance rules, subject to its own separate calculation. Importantly, simply taking your 25% tax-free pension commencement lump sum does not trigger the MPAA on its own -- it is specifically triggered by taking taxable income from drawdown, an Uncrystallised Funds Pension Lump Sum (UFPLS) beyond the tax-free portion, or certain other flexible withdrawal methods, so retirees who only take the tax-free lump sum and leave the rest invested can continue contributing up to the full £60,000 standard allowance if they wish. Anyone who might want to keep working and contributing to a pension after starting to draw retirement income should consider carefully whether triggering the MPAA is worthwhile, since once triggered it cannot be reversed, even if you later stop taking withdrawals.

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