You need to watch out for the money purchase annual allowance if you want to start taking money out of your pension savings while you’re still paying in to a pension. It reduces the combined amount you and your workplace can pay into your pension, and still get tax relief, to £10,000 a year.
This won’t stop you paying more than £10,000 into your pension savings, but you won’t get tax relief on any amount over £10,000 that you and your workplace pay into your pension savings in a tax year.
You can’t carry forward unused money purchase annual allowance.
The money purchase annual allowance
| Usually applies if you… | Doesn’t usually apply if you… |
| take some or all your pension savings as cash | buy a lifetime annuity to give you a guaranteed income |
| put your pension savings into a ‘drawdown’ arrangement and take an income from it | put your pension savings into a drawdown arrangement to take tax-free cash, but don’t take any income from it |
| buy a flexible annuity where the income could go down | turn a small amount of pension savings, worth £10,000 or less, into cash |