Annuities offer a perk for older workers looking to access their retirement savings while continuing to top up their pension

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• The Money Purchase Annual Allowance (MPAA) is not triggered when buying a lifetime annuity
• This means people maintain their full annual savings allowance in a way that is not permitted if you move to drawdown or start taking cash lump sums
• Just 5% of over 50’s are familiar with the term MPAA and when this is triggered, Standard Life research reveals

Almost half (46%) of the UK population expect to transition gradually into retirement¹, which typically involves starting to draw on pension savings while beginning to reduce working hours. However for people taking this approach, particularly those looking to save larger sums, this can reduce their ability to continue making contributions to their pension.

This is because drawing down or taking cash lump sums from your pension pot can trigger the Money Purchase Annual Allowance (MPAA), which means the amount you can pay into your pension each year and still receive tax relief on drops from £60,000 to £10,000.

This is a particular challenge given low levels of awareness about MPAA. Just 5% of over 50’s are familiar with the term and when this is triggered, while a further 9% say they are familiar with it but do not know the details about when it is triggered. Four fifths (80%) of over 50’s are not familiar with the term and have never heard of it².

Annuitising part of your savings

For those looking to take an income from their pension savings while maintaining the ability to top up their pension without it impacting their annual allowance, annuitising a portion of their savings with a lifetime annuity is an option.

Pete Cowell, Head of Annuities at Standard Life, part of Phoenix Group, said: “Awareness of the Money Purchase Annual Allowance is low and it can be a potential pitfall for those who are looking to access benefits and continue to top up their pension in the run up to retirement. This allowance has recently increased to £10,000, which could impact those looking to save larger sums. The MPAA won’t normally be triggered when purchasing a lifetime annuity, which provides a guaranteed income for life. Lifetime annuities can therefore be a beneficial way for older workers looking to start accessing some of their savings while also retaining the ability to pay significant sums into their pension.”

Gender differences

Familiarity with the term Money Purchase Annual Allowance (MPAA) appears higher with men than with women, with three quarters (75%) of men saying they are not familiar with it and have never heard of it, versus a higher 86% of women. 7% of over 50’s men say they are familiar with the term and know when it is triggered, versus 3% of women.

Pete Cowell continued:: “Having some level of familiarity with the tax rules when accessing your pension savings is vital to ensuring you’re maintaining your ability to save or not paying more tax than you need to. This is where the role of a financial adviser is particularly important, supporting people with their financial planning needs in their journeys to and through retirement. Individual annuities are worth considering for a number of reasons, and not least due to their ability to provide certainty through a guaranteed pension income, whilst preserving your pension allowance and your ability continue making significant contributions.”

5 top tips on transitioning into retirement and the different ways to access your pension savings:

1. Consider the benefits of a lifetime annuity, providing a guaranteed income for life to top up your State Pension or other income, which can start any time after age 55
2. Ensure you are familiar with any tax implications when accessing your pension savings, to ensure you retain your personal allowances and don’t end up paying more tax on your savings than you need to
3. As part of this, consider how the Money Purchase Annual Allowance works – noting that is not triggered when buying a lifetime annuity
4. Consider fixed term annuities to help bridge any gap between stopping work or reducing working hours and the State Pension kicking in, providing a guaranteed income for a set period which can be changed once the term comes to an end. Unlike a lifetime annuity, fixed term annuities can trigger the MPAA
5. Importantly, speak to Pension Wise or seek financial advice to help make the right decisions on the best ways to access your pension savings and make use of the range of different retirement income solutions available, to help create a tailored retirement journey that suits your needs

Ends

Notes to editors

¹ Phoenix Insights research conducted by Message House, carried out in January 2024 among 1,502 UK adults. Weighted to be nationally representative - How our perceptions and expectations of retirement and work are changing | Phoenix Group (thephoenixgroup.com)
² Research commissioned by Standard Life and conducted by Opinium, with a nationally representative sample of 2000 over 50 years old, between 25th July – 12th August 2024

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