Could you explain to me what the annual allowance is and what it means for my pension? Also, I’ve heard that there’s also a reduced annual allowance. Will I be able to contribute less to my pension as a result?
The annual allowance is how much you can contribute to your pension each tax year and still get tax relief on those contributions. The annual pension allowance in the 2023/24 tax year is £60,000 for most people.
Today’s £60,000 annual allowance threshold is a gross figure – it includes HMRC’s contributions to your pension in the form of tax relief and any contributions from your employer.
Importantly, if you want to pay the maximum £60,000 annual allowance into your pension, your earnings will need to be at least equal £60,000 to do so.
Another way in which the government has reduced the annual allowance will affect those who have a combined taxable income and pension contributions of over £260,000 per year.
From April 2023, anyone in this with such earnings will see their annual pension allowance taper off by £1 for every £2 they earn above £260,000. This is subject to a maximum tapering of £30,000.
IMPORTANT NOTICE 🧐
The following information on tapering the annual allowance is subject to change in April 2023.
As such, anyone with an annual pensionable income of £210,000 or more from the 2016/17 tax year onwards has their yearly pension allowance tapered down to just £10,000.