What is the pension annual allowance?

Could you explain to me what the annual allowance is and what it means for my pension?
Also, I’ve heard that the government is considering a reduced annual allowance. Will I be able to contribute less to my pension in the future?

Question asked by Mr S Pavani
Are You Pension Happy?
Call us on 02084327334
I know how much my pension is worth
I know how much my pension costs
I have clear financial goals for my retirement

Answered by Michael Englefield

The annual pension allowance explained

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 2016/17 tax year is £40,000 for most people.

The government has in fact already reduced the annual allowance over a number of years since 2010/11, when it stood at £255,000.

Today’s £40,000 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.

neiladamsportraitround

If you’d like to work out how much you can pay into your pension this tax year, our pension annual allowance calculator does all the calculations for you.

Neil Adams
Pension Specialist at Drewberry

Importantly, if you want to pay the maximum £40,000 annual allowance into your pension, your earnings will need to be at least equal £40,000 to do so.

Tapered annual pension allowance for additional rate taxpayers

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 £150,000 per year.

Higher earners could have their annual pension allowance tapered down to £10,000.

From April 2016, anyone in this with such earnings will see their annual pension allowance taper off by £1 for every £2 they earn above £150,000. This is subject to a maximum tapering of £30,000.

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. This tapering of the maximum pension contribution you can make is also taken into account in Drewberry’s annual pension allowance calculator.

Pensions
 
Pension annual allowance calculator
 
Pension annual allowance
 
Pension carry forward
 
This information does not constitute financial or other professional advice. You should consult your professional adviser or contact us directly on 02084327333 should you require financial advice. It is important to ensure any insurance policy you take out is suitable for your needs.
Start your journey today...
  Find out how a Drewberry financial adviser can help you reach your destination by making the most of your finances.
Call us on 

Frequently Asked Pensions Advice Questions

 
I try and keep up with the latest developments but I’m confused about how the new ‘pension...
 
Could you explain annuities and taxation to me please? I’m approaching retirement and considering...
 
I’m now working overseas but plan to return to the UK at some point in the future. Am I still able...
 
I was looking at buying an annuity but someone said another option is drawdown, what is this and how...
Need Help? Live chat now and get an instant answer from our Experts...

Neil
Pensions

Victoria
Insurance
Our Latest Reviews
Trevor Massey
22/01/2019

Excellent service from start to finish. Both Jack & Jake were both helpful and polite through the process. I would recommend Drewberry to family and friends.

Adriana Fouche
31/01/2019

Oliver was great at explaining things, with patience. He called back when he said he would, and spent a lot of time to make sure the policy meets my needs.

Robin Condliffe
12/02/2019

Victoria Slade has been consistently prompt, personable, efficient and a great communicator. It is the first time that we have had straightforward dealings with financial services since becoming qualified doctors 20 years ago. Well done!

We are rated 4.9/5 based on 2024 independent client reviews.
To read more of our independent client reviews click here →
REVIEWS
EXCELLENT
4.92 / 5 Average
2024 Reviews
H CONDLIFFE
Overall Rating
Victoria Slade has been consistently prompt, personable, efficient and a greta communicator. It is the first time that we have had straightforward dealings with financial services since becoming qualified Drs 20 years ago. Well done!
K Szymkiewicz
Overall Rating
Rauri Taylor is Independent Protection Expert who you want to help you with any Pensions, Investments & Insurance. He helped me made right choice.
S Brocklehurst
Overall Rating
Professional service, Oliver seemed genuinely interested in getting the right product for me. I was given plenty of options and everything was described fully when required. I felt no pressure to purchase a product.
G Bigga
Overall Rating
Helpful, knowledgeable and efficient and able to find great prices. I would highly recommend
N Lawton
Overall Rating
Everything was very well organised. Sam took the time to explain all of the options very thoroughly so that I could choose the right policy.