A guide to permitted contribution allowances, lifetime allowance protections and tax relief.
Member contributions in any tax year on which tax relief may be granted, are restricted to the greater of:
Contributions/inputs to registered pension schemes are also restricted by the member's available annual allowance in the tax year. From the tax year 2023/2024 the annual allowance has effectively been £60,000. This can only be exceeded where the member has unused annual allowance from the three previous tax years that can be carried forward to the current tax year.
Inputs include benefit accrual in a defined benefit scheme or cash balance scheme above a certain amount.
The annual allowance does not apply in the tax year in which a member dies or retires due to serious ill-health (i.e. has been advised by a medical practitioner that their life expectancy is less than a year).
More on carry forward
For tax year 2023/24 an individuals adjusted income is over £260,000 their annual allowance could be reduced to as much as £10,000. Adjusted income includes the individuals' earnings, dividends, interest on savings and pension contributions (both member and employer).
The tapered annual allowance was introduced on 6 April 2016. It reduced a pension scheme member's annual allowance on a sliding scale for a tax year in which their 'adjusted income*' and 'threshold income**' exceeds £260,000 in a tax year. Members with an adjusted income of £360,000 or more will have a tapered annual allowance of £10,000 gross.
This allowance will not apply if a members 'threshold income**' is £200,000 or less even if they had adjusted income of £260,000 or more. The minimum tapered annual allowance has varied in the tax years since its introduction.
For the tax year 2023/24 onwards, the adjusted income limit increased to £260,000 and the threshold income limit remained at £200,000. The minimum tapered annual allowance increased from £4,000 to £10,000 per annum, meaning that someone subject to the tapered annual allowance will have a minimum annual allowance of £10,000, regardless of their adjusted earnings. This means members with adjusted income in the tax year of £360,000 or more, will have a tapered annual allowance of £10,000.
The tapered annual allowance does not apply if a member's 'threshold income' for any of these tax years is £200,000 or less even if they have adjusted income of £260,000 or more.
*Adjusted income includes the member's earnings, dividends, interest on savings and pension contributions (including those made as a result of a salary sacrifice or similar arrangement).
**Threshold income is broadly similar to adjusted income except that pension contributions that entitle the member to Relief at Source and employer contributions resulting from a salary sacrifice (or similar arrangement) made before 9 July 2015 are excluded.
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