Your tax limits

Annual Allowance

The Annual Allowance (AA) is a limit to the total amount of contributions that can be paid to defined contribution (DC) pension schemes and the total amount of benefits that you can build up in defined benefit (DB) pension schemes each year, for tax relief purposes.

The AA was initially set at £225,000 pa in 2006 and whilst it steadily increased for several years, the standard Annual Allowance is currently £40,000. Each member needs to assess their own AA as depending on their circumstances, this may be as low as £4,000. For more information on the Tapered Annual Allowance, please click here

If you have taken flexible benefits from a DC arrangment, including taking a one off lump sum, then you will be subject to a lower Annual Allowance of £4,000, this is called the Money Purchase Annual Allowance (MPAA). If you are affected by this, your DC provider will have provided you with a statement. You are required to tell your current DC provider (the one that you are paying contributions to) within 91 days of flexibly accessing your benefits or joining the Scheme if later.

The AA applies across all of the schemes you belong to, it’s not a ‘per scheme’ limit and includes all pensions savings that you, your employer, and anyone else make on your behalf. If you exceed the AA in a tax year you will be faced with an Annual Allowance tax charge on the value of the excess. Any contributions you make over the AA will not attract tax relief and will be subject to Income Tax at the rates that apply to you.

You may however, be able to bring forward any unused Annual Allowances from the previous three tax years, to help reduce the Annual Allowance charge. However, this is not available if you are subject to the MPAA.

For more information on your taxation and the changes introduced by the Budget in 2015, please refer to the Taxation section.

Lifetime Allowance

The Lifetime Allowance (LTA) is the maximum amount you can take in pension benefits during your lifetime from all pension schemes before an additional tax charge is incurred. If the LTA is exceeded, you will be subject to the LTA tax charge. It is unlikely for the majority of members that the LTA will be exceeded, therefore no charge would apply.

The LTA was initially set at £1.5m in 2006 and has steadily changed in recent years:

Retirement Date

Lifetime Allowance

6 April 2014 to 5 April 2016

£1.25 million

6 April 2016 to 5 April 2018

£1 million

6 April 2018 to 5 April 2019

£1.03 million

6 April 2019 to 5 April 2020

£1.055 million

6 April 2020 to 5 April 2021

£1.0731 million

From 6 April 2021

To be confirmed*

 
* Changes to the Standard Lifetime Allowance are announced by the Government in the Budget each year.

For more information on taxation that may affect you please see the Taxation section.

All figures quoted in relation to the AA and LTA are correct for the 2020/21 tax year.

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