The Annual Allowance is the maximum contribution amount an individual can make towards pensions, without an annual allowance charge being applied.
Tax-relievable contributions are limited to the greater of £3,600 gross per annum, or 100% of relevant UK earnings in the tax year they pay the contribution.
For each tax year since 6 April 2016, the standard Annual Allowance is £40,000 per annum. However, it may be less than £40,000 due to either of the two following instances:
Money Purchase Annual Allowance
This is a consideration for those who have accessed their pension flexibly. Since April 2015, the Annual Allowance will continue to be the primary allowance to consider, however, where flexibility has been accessed under the new flexible pension rules (trigger event) the Money Purchase Annual Allowance (MPAA) rules will also apply.
The MPAA limit is currently £4,000pa, effective from 6 April 2017 – a reduction from £10,000 which applied for tax years 2015/16 and 2016/17.
Tapered Annual Allowance
From tax year 2016/17, a reduced annual allowance may apply to all pension savings by or on behalf of a member, depending on their level of taxable income within the tax year.
For individuals with “threshold income” of over £110,000 AND “adjusted income” of over £150,000 a tapered annual allowance will apply.
Where both the adjusted income and threshold income have been breached then the rate of reduction in the annual allowance is by £1 for every £2 that the adjusted income exceeds £150,000, up to a maximum reduction of £30,000, down to a minimum tapered annual allowance of £10,000.
This results in an Annual Allowance of £40,000 for those with an adjusted income of less than £150,000; a reducing Annual Allowance for those with adjusted incomes between £150,000 and £210,000 and an Annual Allowance of £10,000 for those with an adjusted income over £210,000.
Speak to one of our advisers if you need any clarification.