Pensions and Tax Relief / Lesson 5 of 8
Tapered and money purchase allowances
Take £1 flexibly from a pension and your allowance can drop by fifty thousand.
The short answer
- ✓ The taper reduces the allowance above £260,000 of adjusted income, to a floor of £10,000
- ✓ Adjusted income includes employer contributions, so it exceeds salary
- ✓ Flexibly accessing a pension permanently cuts the allowance to £10,000
- ✓ Taking only the tax-free lump sum does not trigger the MPAA
Two restrictions on specific groups
Both replace the standard annual allowance with a much lower one, and both catch people who did not realise they had triggered anything.
The taper, for high earners
Once adjusted income exceeds £260,000, the annual allowance reduces on a sliding scale, falling to a floor of £10,000 for the highest earners.
Standard allowance £60,000
Taper begins at adjusted income £260,000
Reduced by £1 for every £2 over
Floor for the highest earners £10,000Adjusted income is a specific measure that includes employer pension contributions, so it can be considerably higher than your salary. A second threshold based on income excluding pension contributions also applies, which protects people whose income is high only because of a large employer contribution. This is genuinely complicated, and it is the point at which professional advice usually pays for itself.
The money purchase annual allowance
Once you access a defined contribution pension flexibly, your allowance for future money purchase contributions drops to £10,000, permanently. Carry forward cannot be used against it.
| Action | Triggers the MPAA? |
|---|---|
| Taking taxable income from flexi-access drawdown | Yes |
| Taking an uncrystallised funds pension lump sum | Yes |
| Taking only the tax-free lump sum, leaving the rest | No |
| Buying a lifetime annuity | No |
| Taking a defined benefit pension | No |
| Taking a small pot lump sum within the rules | No |
The bit HMRC does not spell out
The MPAA is permanent and irreversible. Someone who withdraws a small taxable amount at 56, perhaps to cover a one-off cost, permanently reduces their future allowance from £60,000 to £10,000. If they later return to well-paid work and want to rebuild their pension, they cannot.
Taking only the tax-free lump sum does not trigger it. The distinction between that and taking taxable income is one of the most consequential in the whole pension system, and it is easy to cross without noticing.
This is general tax information, not financial advice. Decisions about accessing a pension depend on your whole situation and are worth taking properly advised.
Common mistakes
- Taking a small taxable withdrawal without realising. It is permanent.
- Assuming carry forward helps against the MPAA. It cannot be used.
- Thinking the taper follows salary. Adjusted income includes employer contributions.
- Confusing the tax-free lump sum with flexible access. Only the latter triggers it.
Try it on your own numbers
This is the same calculator as the full tool page, using 2026/27 rates.
Your pension contributions
Check this year's contributions against your £ annual allowance, including taper and carry forward.
You + employer + tax relief (the full gross amount / pension input amount).
The allowance tapers down once adjusted income tops £ - but only if threshold income is also above £.
Taxable income + all pension contributions (incl. employer).
Roughly your taxable income excluding employer contributions.
Unused allowance from the last 3 tax years can be added on top - if you were a pension scheme member in those years.
Used only to estimate the annual allowance charge on any excess.
You may face an annual allowance charge. You can still contribute this much before a charge applies.
- Standard annual allowance
- Taper reduction
- Carry forward added
- Available allowance
- Contributed this year
Estimated annual allowance charge
Room to contribute
headroom left
of allowance used
Estimate only. The annual allowance charge is added to your income and taxed at your marginal rate(s). Check with a regulated adviser.
Allowance by year
Carry forward uses the oldest unused allowance first. Bars show each year's allowance; the line marks this year's contribution against your total available pot.
Compare saved scenarios
| Scenario | Available | Contributed | Excess / charge | |
|---|---|---|---|---|
Key takeaways
- ✓ The taper reduces the allowance above £260,000 of adjusted income, to a floor of £10,000
- ✓ Adjusted income includes employer contributions, so it exceeds salary
- ✓ Flexibly accessing a pension permanently cuts the allowance to £10,000
- ✓ Taking only the tax-free lump sum does not trigger the MPAA
Check you have got it
3 quick questions. No score is kept, and you can change your mind.
1. What triggers the money purchase annual allowance?
2. Can carry forward be used against the money purchase annual allowance?
3. What is adjusted income based on?
Sources
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