Guidance

Check if you’ve gone above the money purchase annual allowance

Work out what your allowances are and if you need to pay tax on your pension savings if you flexibly access your pension.

If you flexibly access your pension, you’ll need to work out what your alternative annual allowance is and if you’ve gone above your other allowances.

You might have flexibly accessed your pension if you’ve taken money out of a:

Your pension provider will send you a flexible access statement within 31 days of flexibly accessing your pension for the first time. If it’s an overseas pension, you’ll get the statement within 91 days.

You do not need to work out your allowances if you have not gone above the money purchase annual allowance (MPAA).

What you’ll need

You’ll need to know your total pension savings for each of your pension schemes in the tax year you’re checking. If you do not know, ask your pension providers.

Your pension savings are:

Use the calculator

Use the calculator to check if you need to pay tax on your pension savings.

You cannot use the calculator if your:

  • pension scheme has aspects of both defined benefit and defined contribution schemes (known as a ‘hybrid scheme’)
  • pension provider accepted a declaration for flexible drawdown before 6 April 2015

If you cannot use the calculator

You’ll need to work out if you’ve gone above the money purchase annual allowance.

Your calculations might be different if you’re carrying forward unused allowance from the 2015 to 2016 tax year, but the rules are complicated – speak to a tax or pensions professional to check.

Work out if you’ve gone above the money purchase annual allowance

You’ve gone above the money purchase annual allowance if you’ve paid over £4,000 into all of your defined contribution pensions from either the:

  • day after you first flexibly accessed your pension to the end of the tax year
  • whole of the tax year if you flexibly accessed in a previous tax year

You cannot use unused allowances from previous tax years to reduce the amount you’ve gone above the money purchase annual allowance by.

If you’ve not gone above the money purchase annual allowance, you’ll pay tax on all pension savings that go above your annual allowance.

If you have gone over the money purchase annual allowance, work out:

  1. What your alternative annual allowance is.
  2. If you’ve gone above the alternative annual allowance.
  3. The alternative chargeable amount.
  4. The default chargeable amount.

Work out what your alternative annual allowance is

The alternative annual allowance applies to all pension savings in your defined:

  • benefit pension
  • contribution pension before you flexibly accessed

The alternative annual allowance is £36,000, but it may be different if your adjusted income is over £240,000 in the current tax year.

If your adjusted income is over £240,000

If your adjusted income for the current tax year is over £240,000 (including bonuses, investments and other sources), your alternative annual allowance may be reduced.

The threshold income and adjusted income limits were different for earlier tax years.

To work out what your alternative annual allowance is:

  1. Work out your reduced (tapered) annual allowance.
  2. Deduct £4,000.

Work out if you’ve gone above your alternative annual allowance

The way you work out if you’ve gone above your alternative annual allowance is different depending on when you first flexibly accessed your pension.

If the first time you flexibly accessed your pension was in this tax year

  1. Start with the total amount of your defined benefit pension savings for the tax year you’re checking.
  2. Add the amount of pension savings made to your defined contribution pensions from the start of the tax year to the date you first flexibly accessed your pension.
  3. Deduct your alternative annual allowance.

If the first time you flexibly accessed your pension was in a previous tax year

  1. Start with the total amount of your defined benefit pension savings for the tax year you’re checking.
  2. Deduct your alternative annual allowance.

Check if you need to pay tax

The amount of pension savings you’ll pay tax on is the higher of the alternative chargeable amount and the default chargeable amount. If they’re the same, that’s the amount you’ll pay tax on.

Work out the alternative chargeable amount

  1. Start with how much your Defined Contribution pension savings are over the MPAA.
  2. Check all your other pension savings against your alternative annual allowance. If those pension savings are more than your alternative annual allowance, then unused allowances from the 3 previous tax years are carried forward and used. Add any remaining pension savings to the amount you worked out in step 1.
  3. If you have not used all your alternative annual allowance and unused allowances, the amount you add to step 1 is nil.

Work out the default chargeable amount

  1. Start with the total amount of pension savings in all of your pensions for the year you’re checking.
  2. Deduct your annual allowance
  3. Carry forward any unused annual allowances from the previous 3 tax years.

Check if you have unused allowances to carry forward at the end of the year

The amount you can carry forward depends if the alternative chargeable amount or default chargeable amount is higher.

The amount of unused allowance you can carry forward is:

  • the amount left after you worked out the:
    • alternative chargeable amount, if the alternative chargeable amount is higher
    • default chargeable amount, if the default chargeable amount is higher
  • the figure you get when you worked out the default chargeable amount, if the default chargeable amount and the alternative chargeable amount are the same

You cannot carry forward:

  • the amount of unused allowance from the earliest of the 3 previous tax years included in the calculation – this is lost under the 3-year carry-forward rules
  • unused MPAA

Pay tax if you go above your allowance

If you’ve gone above your allowance, you’ll need to declare it on a Self Assessment tax return and pay tax.

Published 11 January 2019
Last updated 6 April 2020 + show all updates
  1. The adjusted income has increased from £150,000 to £240,000 from 6 April 2020.

  2. The 'Check if you need to pay tax' section has been updated to clarify how to work out the alternative and default chargeable amount. How to check if you have unused allowances to carry forward at the end of the year has also been updated.

  3. If you flexibly access a qualifying overseas pension that has had UK tax relief and it's the first time you've flexibly accessed a pension, you'll get a flexible access statement within 91 days.

  4. First published.