Introduction to this document

Flow chart - pension contributions annual allowance

If you are under 75 you’re entitled to tax relief on pension contributions of up to £40,000 in a tax year.

Flow chart

Our Flow Chart - Pension Contributions Annual Allowance will help you work out how much you’re entitled to.

Definitions for flow chart:

  • Money purchase scheme - also known as “defined contribution scheme” is the most common form of pension savings where the value of your fund is increase by payments made by you or on your behalf, e.g. by your employer. Your pension will be based on the amount of your pension savings
  • Final salary scheme - also known as a “defined benefit scheme”. Your pension will be based on the number of years and your rate of pay with the employer who funds the scheme. It is sometimes possible to buy extra years of pension rights.
  • Relevant earnings - means income from employment or profits from a trade or profession.
  • Annual allowance (AA) - currently £40,000 - is the maximum amount of pension savings that an individual (or someone on their behalf) can save into a pension scheme in any tax year for which they are entitled to tax relief.
  • Money purchase annual allowance (MPAA) - this caps the amount of tax relief at a lower level than the normal AA. It applies where you have “flexibly accessed” your pension savings. Broadly, this means taken money or value from your pension subsequent to 5 April 2015 except where at that date you were already taking money or a pension from your savings and the rate hasn’t varied since.
  • Tapered AA - your AA is tapered (reduced), by £1 for every £2 of your income, but not to less than £4,000 for any tax year, where your income exceeds either of two limits; £200,000 where your employer contributes to your pension and £240,000 if your employer doesn’t contribute.

The AA is reduced in some circumstances. Namely, where the MPAA and AA are tapered. Note that if your relevant earnings for a tax year are less than £40,000, the tax-relievable contributions are limited to the amount of your relevant earnings, but no lower than £3,600. This does not affect the AA you are entitled to.

If you have one or more pension saving arrangements but don’t use part of your AA or tapered AA, the unused part can be carried forward and used to increase your AA or tapered AA for any of the next three years. There is no carry forward for unused MPAA.

For more information on when the MPAA applies visit https://tinyurl.com/y3uzkayu, and for how to calculate tapered AA, see https://tinyurl.com/h2cmh2j

Document

Use our Pension Premium Record to help manage tax relief on your pension contribution.