Guidance

Work out your allowances if you’ve flexibly accessed your pension

Find out when the money purchase annual allowance (MPAA) applies, what your allowances are and if you need to pay tax on your pension savings.

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.

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

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
  • the whole of the tax year if you flexibly accessed in a previous tax year

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
  • defined contribution pension before you flexibly accessed

The alternative annual allowance is £36,000, but it may be different if your adjusted income is over £150,000.

If your adjusted income is over £150,000

If your adjusted income for the tax year is over £150,000 (including bonuses, investments and other sources), your alternative annual allowance may be reduced.

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 the amount you’ve gone above the money purchase annual allowance by.
  2. Add the amount you’ve gone above your alternative annual allowance by.
  3. Carry forward any unused annual allowances from previous tax years.

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 previous tax years.

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

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

If the alternative chargeable amount is higher, the amount of unused allowance you can carry forward is the amount of unused allowance left after you worked out the alternative chargeable amount.

If the default chargeable amount is higher, the amount of unused allowance you can carry forward is the amount of unused allowance left after you worked out the default chargeable amount.

Unused money purchase annual allowance cannot be carried forward.

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