What is the Annual Allowance?

The Annual Allowance is the maximum amount of pension input, i.e. a contribution that can be made in a tax year without attracting a tax charge. The standard annual allowance is £40,000.

However, if you were a member of a registered pension scheme over the last three tax years and did not fully use your annual allowance in those years, you are also allowed to carry forward any unused tax relief from those years, which can increase the amount of pension contribution that you can make in the current tax year without attracting a tax charge.

If you have any queries regarding your annual allowance, contact Boolers and our team can provide annual allowance advice to clients throughout Leicester.

What was the Annual Allowance previously?

The concept of Annual Allowance was introduced in 2006, but the value of it has changed a great deal over the years, as shown in the following table:-

Tax Year Annual Allowance
2006/07 £215,000
2007/08 £225,000
2008/09 £235,000
2009/10 £245,000
2010/11 £255,000
2011/12 £50,000
2012/13 £50,000
2013/14 £50,000
2014/15 £40,000
2015/16 £40,000
2016/17 £40,000*

*Introduction of Tapering (see below)

Tapering of Annual Allowance - the position from 6 April 2016

A change to the annual allowance was introduced on 6 April 2016. The Annual Allowance for 2016/17 continues to be £40,000, but from this date, high earners may see their annual allowance in a tax year reduced down to as little as £10,000.

Individuals with adjusted income greater than £150,000 in a tax year will have their annual allowance reduced for that year, by £1 for every £2 earned over £150,000.

The following table demonstrates this a little better:-

Income Actual Annual Allowance
£150,000 £40,000
£160,000 £35,000
£170,000 £30,000
£190,000 £20,000
£210,000 and over £10,000

New income definitions have also been introduced, as follows:-

Adjusted income is total income before tax from all sources plus pension contributions made by the employer plus pension contributions made under a ‘net pay’ arrangement.

Threshold income is total income before tax from all sources plus the amount of employment income given up for pension provision via a salary sacrifice arrangement entered into on or after 9 July 2015, less the gross amount of any personal contributions paid into a pension scheme.

If your threshold income is £110,000 or less, then you will not be affected by tapering, irrespective of your adjusted income figure.

Individuals who are subject to tapering can still carry forward unused relief from previous years, to increase the amount of relievable pension contribution that can be made. Equally, you can carry forward unused relief from a ‘tapering year’, but only the balance of your tapered amount.

Money Purchase Annual Allowance

If you have taken advantage of the April 2015 changes and flexibly accessed your benefits, then your ongoing contribution into a money purchase scheme is restricted to just £10,000p.a. with no carry forward ability.

This is also the case if you were in Flexible Drawdown before April 2015,as you are now deemed to be in Flexi-Access Drawdown.

Defined Benefits Schemes

Please note, the calculation of your pension input amount for a defined benefit scheme is treated in a very different manner, if you have a query on the deemed annual allowance within your final salary pension arrangement, then please contact your Scheme Administrator, or contact Boolers for specialist annual allowance advice.