The Annual Allowance (AA) is the amount that can be paid each year into your pension with tax relief. The Annual Allowance for most people is £60,000 (from April 2023) but there are two variations on this:
- The Money Purchase Annual Allowance (MPAA), which applies to people who take their DC pension pots flexibly and is currently £10,000 – find out more here
- The Tapered Annual Allowance, which affects high earners and reduces their Annual Allowance on a sliding scale down to £10,000.
Tapered Annual Allowance
In 2016 the Government introduced a Tapered Annual Allowance for people on very high incomes. At first, it applied to people earning £110,000 a year or more, but from 6 April 2020 this limit increased to £200,000.
A quick check is to add your taxable income together including annual salary, allowances, benefits in kind and any bonus you received from Sainsbury’s this tax year. Remember to take into account any bonus shares vesting in March and include this as part of your taxable income amount.
- If your total is more than £200,000, you may be affected.
- If your total is more than £260,000, you will be affected.
The Annual Allowance guide will help you work out if you’re affected by the Tapered Annual Allowance, and if so, how and what you can do about it.
The guide takes you through the calculations, providing details of what you need to do and where to go if you need to take action.
WTW has created an app which calculates what your AA is and can be downloaded here:
WTW: AA Calculator
Or you can use this carry-forward calculator from Hargreaves Lansdown to work out how much unused AA from previous years is available to offset your current limits.
Hargreaves Lansdown: Carry-Forward AA Calculator