The Annual Allowance is the annual limit on pension savings aligned from 2016-17 with the tax year. The standard annual allowance increased to £60,000 in April 2023. There is also a Tapered Annual Allowance for high earners.
Members of defined contribution schemes have their employee contributions assessed against the allowance, while members of defined benefit schemes have their pension growth in the tax year assessed against the allowance.
The Treasury has a formula for calculating of pension growth in a year for the purposes of the annual allowance.
The annual and lifetime allowances are particularly complex for higher earners with defined benefit pension schemes. As a result of these restrictions, more and more Prospect members are finding themselves facing potential tax charges.
We have a short briefing note outlining the steps members should take if they’ve received a letter from their pension scheme indicating that they have exceeded the Annual Allowance. This is available here.
We also have a comprehensive briefing note on the current pensions tax relief system, covering the Lifetime Allowance, standard Annual Allowance and Tapered Annual Allowance.
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