What is the annual allowance?Fri Feb 05 09:25:01 GMT 2016
The annual allowance is the maximum amount of pension savings an individual can have each year that benefits from tax relief. In practice, an individual is subject to a tax charge (the annual allowance charge) where their pension savings exceed their available annual allowance for a tax year although it is possible to carry forward unused allowances from the three previous tax years. Special rules applied for the 2015/2016 tax year, for more information on this please speak to a financial adviser. The annual allowance for the 2016/17 tax year onwards is £40,000. To measure the contributions paid against the annual allowance, it is necessary to know the pension input amount for the pension input period ending in the tax year being assessed.
From 6 April 2015 a new reduced money purchase annual allowance (MPAA) of £10,000, in respect of money purchase pension contributions, will apply to individuals who have flexibly accessed their pension benefits from this date. In addition to the MPAA, a person can still accrue benefits in a defined benefit arrangement. If the MPAA is not exceeded, then the combined total of all the pension savings that can be made will be subject to the £40,000 annual allowance. Special rules apply in the first year that the reduced MPAA first applies to the individual.
From 6 April 2016, a tapered annual allowance for higher earners is being introduced. Please see FAQ 'What is tapered annual allowance?'