Your pension annual allowance is the limit to the amount of contributions paid to, or benefits accrued in, a pension scheme each year before you have to pay tax. Your annual allowance may be reduced depending on your level of taxable income during the tax year. This reduced allowance is known as the ‘Tapered Annual Allowance’.

For the tax year 2020/21, the Tapered Annual Allowance applies to individuals with “threshold income” of over £200,000 and “adjusted income” of over £240,000. Threshold income broadly means your taxable income during the tax year, whilst ‘adjusted income’ adds in the value of any employer pension contributions made on your behalf.

For the reduced Tapered Annual Allowance to apply, the limits on both your threshold and adjusted income must be exceeded. For every £2 of adjusted income over £240,000, your annual allowance will be reduced by £1. The minimum annual allowance you will get is £4,000.

In summary, members with an adjusted income of less than £240,000 will keep their Annual Allowance of £40,000; those with adjusted incomes between £240,000 and £312,000 will see their annual allowances steadily reducing; and anyone with an adjusted income over £312,000 will get the minimum Annual Allowance of £4,000.

Members whose contributions exceed their Annual Allowance will be subject to tax charges. If you believe this may apply to you we suggest you contact HR in the first instance. Please note that the tax treatment of contributions is subject to any future changes in legislation.