Money purchase annual allowance

Money purchase annual allowance

If you have taken money from a defined contribution pension, the money purchase annual allowance may apply to you.

For the 2025/26 tax year, the money purchase annual allowance is set at £10,000.

How is the money purchase annual allowance triggered?
It’s only triggered if you take money from a defined contribution pension arrangement using a ‘flexible’ payment option. The most of common of these are:

• moving a pension pot into flexi-access drawdown and starting to take an income from it
• taking a pension pot in its entirety as a lump sum. However, if your pension pot is worth less than £10,000 and qualifies to be treated as a ‘small pot lump sum’, the annual allowance isn’t affected
• if you buy an investment-linked/flexible annuity (which is different to a lifetime annuity)
• exceeding the cap on a ‘capped income drawdown’ policy started before April 2015

When won’t the money purchase annual allowance apply?
The money purchase annual allowance won’t normally be triggered if you:

• use your define contribution pension pot to buy an income that’s guaranteed for life (called a lifetime annuity)
• take a tax-free cash lump sum from your defined contribution pension
• move your defined contribution pension pot into flexi-access drawdown but don’t take any income from it
• take money from a defined benefit pension

If you have triggered the money purchase annual allowance (from any scheme or plan), the provider must tell you. They will do this by sending you something called a ‘flexible access statement’.