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Money purchase annual allowance (MPAA) - Case studies

9 min read 4 Apr 22

Case studies demonstrating how the MPAA works for a selection of tax years.

  • The MPAA limit applies from the trigger date of flexible access.

  • Once the MPAA is triggered it applies for the remaining lifetime of the individual who flexibly accessed their pension fund.

  • The MPAA does not apply if the individual is accessing income through dependant, nominee or successor flexi-access funds and they haven’t flexibly accessed their own pensions.

  • The alternative annual allowance can be increased using carry forward, the MPAA limit cannot.

  • If you don’t use your MPAA limit in any one tax year, you cannot use this in a later tax year. Use it or lose it!

Overall, these rules are positive as they allow those who have accessed flexibility to continue to benefit from pension contributions; compared to the previous “Flexible Drawdown” (replaced by Flexi-access drawdown in April 2015) rules where the annual allowance was zero. This is particularly important given changing retirement patterns and the fact that it is now common for pension contributions to continue after initial crystallisation. A continuation of the previous zero AA would have resulted in issues in future. However, the reduction in MPAA could impact those who access benefits flexibly and then belong to a pension scheme where the employer pays more than the minimum required by auto-enrolment.

It is crucial that clients who intend to flexibly access retirement benefits are fully aware of the MPAA and how it will affect any future pension savings they are planning. The MPAA limit may seem to work against individuals who have the means and the will to save for their own retirement, however, where it applies, it reduces the cost to the Treasury of pensions tax relief.

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