The Money Purchase Annual Allowance 2026/27: How Accessing Your Pension Cuts Future Contributions
Once you flexibly access taxable pension income, the Money Purchase Annual Allowance cuts your future tax-relieved pension contributions from £60,000 to £10,000 a year in 2026/27. What triggers it and what doesn't.
Why the MPAA exists
Pension freedoms introduced in 2015 let people access defined contribution pensions flexibly from age 55. Without a safeguard, someone could withdraw pension money, pay themselves the same amount (or less) back into a pension, and claim a second round of tax relief on money that never really left the pension system — a form of "pension recycling". The Money Purchase Annual Allowance exists specifically to stop this.
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Open Pension calculatorWhat triggers it — and what doesn't
Triggers the MPAA:
- Taking any taxable income through flexi-access drawdown
- Taking an uncrystallised funds pension lump sum (UFPLS) where part of the payment is taxable
- Buying a flexible annuity that can be adjusted or reduced
Does not trigger the MPAA:
- Taking only your 25% tax-free cash and leaving the rest untouched in drawdown, without drawing any taxable income
- Buying a standard, non-flexible lifetime annuity
- Cashing in a small pot (£10,000 or less, up to 3 for personal pensions)
- Receiving pension income from a defined benefit (final salary) scheme
Worked example: the cost of triggering it
Someone aged 57, still working and earning £70,000, decides to take some taxable drawdown income from their SIPP to help fund a home renovation, alongside continuing to pay into a workplace pension.
- Standard annual allowance (before triggering MPAA): £60,000
- After taking taxable drawdown income: annual allowance for defined contribution inputs drops to £10,000
- If they were previously contributing, say, £25,000 a year (including employer contributions) into their workplace pension with full tax relief, they can now only get tax relief on £10,000 of that — the remaining £15,000 would trigger an annual allowance tax charge if paid in without adjustment
Why timing matters for people still working
The MPAA is a particular trap for people who access pension income relatively early — for example, drawing on one pension to fund a career break or reduced hours — while still wanting to make substantial contributions to another pension. Taking tax-free cash only, rather than taxable drawdown income, or using the small pot rules for genuinely small pots, can achieve a similar cash need without permanently restricting future contribution capacity.
isa-types-explainedBottom line
The Money Purchase Annual Allowance is one of the most consequential pension rules for anyone considering early or partial access to a defined contribution pension while still working. Understanding exactly which actions trigger it — and which don't — before touching a pension pot can be the difference between preserving full future contribution capacity and permanently cutting it to £10,000 a year.
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Frequently asked questions
What is the Money Purchase Annual Allowance?
The Money Purchase Annual Allowance (MPAA) is a reduced annual limit on how much you can pay into a defined contribution pension while still getting tax relief, once you have flexibly accessed taxable income from a pension. It is £10,000 in 2026/27, down from the standard £60,000 annual allowance.
What actions trigger the Money Purchase Annual Allowance?
Taking any taxable income from a defined contribution pension through flexi-access drawdown, taking an uncrystallised funds pension lump sum (where part is taxed), or buying a flexible annuity generally triggers the MPAA. Simply taking your tax-free cash without drawing any taxable income, or buying a standard lifetime annuity, does not trigger it.
Does taking a small pot lump sum trigger the MPAA?
No — small pot lump sums (from pension pots worth £10,000 or less, up to 3 for personal pensions) are a specific exception and do not trigger the Money Purchase Annual Allowance, unlike most other ways of taking taxable pension income.
Can I still contribute £60,000 to a defined benefit pension once the MPAA applies?
The MPAA specifically restricts defined contribution pension inputs. If you also have a defined benefit pension, a more complex 'alternative annual allowance' calculation applies to the combined position, but the practical effect is still a substantial cut to your overall tax-relieved pension saving capacity.
Is the £10,000 Money Purchase Annual Allowance likely to change?
The MPAA has changed in the past — it was £4,000 before being raised to £10,000 in April 2023 — so while it remains at £10,000 for 2026/27, it is not guaranteed to stay at this level indefinitely and is worth checking each tax year.
Why does the MPAA exist?
It exists to prevent 'recycling' — withdrawing pension money and immediately reinvesting it to claim a second round of tax relief on the same money, which the government considers an inappropriate use of pension tax reliefs rather than genuine retirement saving.
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Related reading
The Lump Sum Allowance 2026/27: How Much Tax-Free Cash You Can Really Take
The Lump Sum Allowance caps tax-free pension cash at £268,275 in 2026/27, replacing the old Lifetime Allowance mechanism. How it works, and the separate £1,073,100 Lump Sum and Death Benefit Allowance.
Pension Wise 2026/27: Free Guidance Before You Touch Your Pension Pot
What Pension Wise is, who can book a free appointment from age 50, what it does and doesn't cover, and why it's not the same as regulated financial advice — with a worked example of when to use it.
Small Pot Pension Lump Sums 2026/27: Cashing In Pensions Under £10,000
How the small pot pension rule lets you cash in pension pots worth up to £10,000 without affecting the Money Purchase Annual Allowance — worked example and the 3-pot limit for personal pensions.