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. Since the tax year 2014/2015 the annual allowance has effectively been £40,000. 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).
The tapered annual allowance was introduced on 6 April 2016 and reduces a member's annual allowance on a sliding scale for a tax year in which they have an 'adjusted income*' of more than £150,000 and a 'threshold income' of more than £110,000 (i.e. the maximum reduction to the current annual allowance of £40,000 is £30,000). Therefore, any member with an adjusted income of £210,000 or more in a tax year will have a tapered annual allowance for that tax year of £10,000.
*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).
The tapered annual allowance does not apply if a member's 'threshold income' for a tax year is £110,000 or less even if they have adjusted income of £150,000 or more.
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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