MPAA 2026/27: How Taking GBP 1 of Pension Income Caps You at GBP 10,000

What the MPAA is

The standard pension annual allowance for 2026/27 is £60,000. But once you start flexibly accessing taxable pension income, a much lower limit can kick in: the Money Purchase Annual Allowance (MPAA) of £10,000.

The MPAA exists to stop people recycling money through a pension, taking it out with tax relief already claimed, then paying it straight back in for more relief. It is a real trap for people who dip into a pension while still working.

The MPAA is not a new rule — it was introduced alongside pension freedoms in April 2015 at £10,000, briefly cut to £4,000 in 2017, and then restored to £10,000 from April 2023. For 2026/27 it remains at £10,000. The government has not announced any change to this figure for the foreseeable future.

What triggers it

The MPAA is triggered by taking taxable income flexibly, including:

• Taking income from a flexi-access drawdown fund
• Taking an uncrystallised funds pension lump sum (UFPLS)
• Exceeding the income cap on a pre-2015 capped drawdown plan
• Taking a flexible annuity or certain scheme pensions where income can vary

It is not triggered by:

• Taking only your 25% tax-free lump sum and entering drawdown without taking income
• Taking small pots under the small pots rule (pots of £10,000 or less, up to three qualifying personal pensions)
• Buying a lifetime annuity
• Cashing a trivial commutation lump sum from a defined benefit scheme
• Receiving income from a defined benefit pension
• Taking a serious ill-health lump sum

The distinction matters enormously: the trigger is the first pound of taxable flexible income, not the tax-free cash and not the act of setting up a drawdown account. You can park funds in a flexi-access drawdown wrapper indefinitely without triggering the MPAA, as long as you do not draw taxable income from it.

Key 2026/27 figures at a glance

Worked example 1: the accidental UFPLS trigger

Dan is 57 and still working, earning £45,000. He decides to take £5,000 of taxable income from a personal pension via UFPLS to fund a one-off home improvement project.

Under UFPLS rules, 25% of the £5,000 (£1,250) is paid tax-free and £3,750 is taxable income. That single taxable element is enough to trigger the MPAA permanently.

From that point in the 2026/27 tax year:

• His money purchase contribution limit drops from £60,000 to £10,000.
• He can no longer use carry forward for money purchase contributions.

Dan and his employer were paying £12,000 a year into his workplace defined contribution pension: £6,000 employee, £6,000 employer. With the MPAA now in force, £2,000 of that £12,000 is above the £10,000 limit. An annual allowance charge applies on the excess:

• Excess above MPAA: £2,000
• Dan is a basic rate taxpayer: charge at 20%
• Annual allowance charge: £400

The charge cancels the tax relief on the £2,000 excess. If Dan takes this UFPLS payment every year for several years while still in work, the cumulative cost could be significant. The relatively small £5,000 withdrawal triggers a permanent change that affects him every year he remains in employment and contributes to a pension.

Worked example 2: the salary sacrifice trap

Carol is 61 and has been scaling back her working hours. She earns £38,000. Her employer uses salary sacrifice: Carol sacrifices £12,000 per year, and her employer contributes an additional £3,000 via matching. Total DC input: £15,000 per year.

Carol also has an old personal pension from a previous employer with a fund value of £40,000. She begins drawing £200 per month (£2,400 per year) from that pot via flexi-access drawdown to top up her reduced salary. That first £200 drawdown payment triggers the MPAA.

Her situation after the trigger:

Carol earns £38,000 and her personal allowance is £12,570, placing most of her income in the basic rate band — but once salary sacrifice restores her taxable salary and pension contributions are netted in, she remains a basic rate taxpayer, so the charge would be 20% of the excess, not 40%. The charge on £5,000 excess is £1,000 per year.

To bring herself within the MPAA, Carol should reduce her total salary sacrifice and employer contributions to no more than £10,000. In practice, she might reduce her own contribution from £12,000 to £7,000, keeping the £3,000 employer match, for a total of £10,000 — exactly at the limit.

Use the pension annual allowance calculator to check your total pension inputs against the MPAA before drawing any flexible income.

Worked example 3: deferring drawdown to maximise contributions

Helen is 58, earns £90,000, and has built a strong pension over her career. She is subject to the tapered annual allowance because her threshold income (£90,000) is below the £200,000 taper threshold, so the standard £60,000 annual allowance applies to her.

Helen wants to draw £15,000 from a SIPP to fund a sabbatical but plans to return to full-time work and continue contributing £40,000 per year into her workplace pension.

If she draws the £15,000 taxable income now, the MPAA triggers and her DC limit drops to £10,000. The difference in DC saving over a five-year return-to-work period:

Even before investment growth, Helen gives up £150,000 of pension saving capacity over five years by drawing taxable income now rather than waiting until she has stopped contributing.

The better alternative: Helen takes only her 25% tax-free pension commencement lump sum. If her SIPP is worth £100,000, she takes £25,000 tax-free and designates the remaining £75,000 to a flexi-access drawdown account without drawing income. This gives her £25,000 cash without triggering the MPAA. She continues contributing £40,000 a year to her workplace pension.

How the MPAA interacts with carry forward

Under normal circumstances, pension carry forward allows you to use unused annual allowance from the previous three tax years. For 2026/27, that means you can draw on unused allowance from 2023/24, 2024/25, and 2025/26 — up to a theoretical maximum of £180,000 in addition to the current year's £60,000.

Once the MPAA is triggered, carry forward is blocked entirely for money purchase contributions. The £10,000 MPAA is a hard ceiling with no mechanism for upward adjustment through carry forward. This means:

• A business owner who sells their company and wants to make a large pension contribution cannot use carry forward for their DC pension if they have previously triggered the MPAA.
• A high earner who has just rejoined the workforce after a career break cannot catch up on DC pension saving above £10,000 if they drew flexible pension income during the break.

Carry forward is only relevant after MPAA triggers in the context of defined benefit pension accrual, where an alternative annual allowance of up to £50,000 can apply.

See the pension carry forward guide for detailed calculations on using unused allowance before triggering the MPAA.

The 91-day notification obligation

When you trigger the MPAA, a formal reporting chain kicks in:

1. The pension scheme that made the first flexible payment must send you a Flexible Access Statement within 31 days of the trigger date.
2. Once you receive the statement, you must notify any other registered pension scheme where you are an active contributor within 91 days of the original trigger date — not 91 days from when you received the statement.
3. You must also notify your employer if they contribute to your pension through salary sacrifice or a workplace scheme.

The purpose is to give other providers and employers the information they need to monitor your total DC input against the £10,000 cap. Missing this notification window does not avoid the MPAA — it applies regardless — but it can result in inadvertent over-contributions by an uninformed employer or scheme, which creates an annual allowance charge you then have to unwind through self-assessment.

Keep a copy of your Flexible Access Statement as evidence of the trigger date, particularly if you change employers.

MPAA and the annual allowance charge

If your total DC pension inputs exceed £10,000 in a year after triggering the MPAA, HMRC levies an annual allowance charge. The mechanics:

• The charge is calculated on the excess above £10,000.
• It is assessed at your marginal income tax rate — 20%, 40%, or 45%.
• You report it on the self-assessment return for the relevant tax year.
• Your pension provider can elect to pay the charge from your pension pot ("scheme pays") if the charge exceeds £2,000 and the excess exceeds £10,000, but standard scheme pays thresholds may not be met when the MPAA is the binding constraint.

The charge effectively reverses the tax relief on the excess contributions, so the pension contribution above £10,000 yields no tax benefit. This makes it doubly important to monitor combined employer and employee contributions if you have triggered the MPAA.

How to avoid the trap

The most effective strategies for avoiding the MPAA trap in 2026/27:

Take only tax-free cash first. If you only need a lump sum, take the 25% pension commencement lump sum and enter drawdown without drawing any income. This does not trigger the MPAA and gives you cash while preserving your full DC contribution capacity.

Use the small pots rule. For old pension pots of £10,000 or less, the small pots rule allows you to take the full value without triggering the MPAA. You can do this for up to three qualifying personal pensions and up to three occupational pensions. This is particularly useful for tidying up legacy pension pots from earlier employment.

Consider a lifetime annuity for income. Buying a lifetime annuity does not trigger the MPAA. If you want guaranteed income but also plan to continue contributing to a DC pension, converting part of your fund to an annuity avoids the MPAA restriction while providing regular income.

Check your total contribution level before drawing income. If your combined employer and employee DC contributions are below £10,000 already, the MPAA will not cause an excess charge even if triggered. In that case, drawing flexible income may be acceptable without changing your pension saving behaviour.

Delay flexible access until contributions have stopped. If you are nearing the end of your working life and contributions are winding down, waiting until you have fully stopped contributing before drawing flexible income means the MPAA will not affect any future saving.

Reduce salary sacrifice before drawing income. If you use salary sacrifice, negotiate a reduction in your sacrifice rate to bring total DC inputs below £10,000 before taking any flexible drawdown income.

The MPAA does not affect defined benefit (final salary) accrual in the same way, but the rules there are more complex — particularly the interaction with the alternative annual allowance — so check carefully if you have a workplace final salary pension and are considering triggering the MPAA.

What to do if you have already triggered the MPAA

If the MPAA has already been triggered, the priority is to bring total DC pension inputs within the £10,000 cap and plan around it:

• Review total employer and employee contributions across all DC pensions. If the combined total exceeds £10,000, you need to reduce contributions or face an annual allowance charge.
• Inform your current employer and all active pension providers that the MPAA applies to you. They cannot apply the correct limit if they do not know.
• Consider whether defined benefit accrual is available to you. DB accrual is unaffected by the MPAA and the alternative annual allowance of up to £50,000 may allow substantial pension building through a DB scheme.
• If you have not yet reported an annual allowance charge for past years where the MPAA was exceeded, seek advice on making a voluntary disclosure to HMRC through self-assessment before any investigation is opened.

Use the pension calculator to model your retirement projections under the £10,000 MPAA cap, and read the official MPAA guidance in HMRC's Pensions Tax Manual (PTM083000 onwards) before making any decisions. This article is general information, not personalised financial advice. Individual circumstances vary and the rules are complex enough to warrant professional guidance for anyone planning around the MPAA.