The pension savings annual allowanceSource: HM Revenue & Customs | | 15/09/2022
The pension savings annual allowance for tax relief on pensions has been fixed at £40,000 since 6 April 2014. The annual allowance is further reduced for high earners. Since 6 April 2020, the tapered annual allowance increased from £150,000 to £240,000.
This means that anyone with income below £240,000 is not affected by the tapered annual allowance rules. Those earning over £240,000 will begin to see their £40,000 annual allowance tapered. For every complete £2 income exceeds £240,000 the annual allowance is reduced by £1. The annual allowance cannot be reduced to be less than £4,000. The annual allowance can also be affected if the taxpayer flexibly accessed their pension pot.
There is a three-year carry forward rule that allows taxpayers to carry forward unused annual allowance from the last three tax years if they have made pension savings in those years. The calculation of the exact amount of unused annual allowance that can be carried forward can be complicated especially if subject to the tapered annual allowance.
There is also a pensions lifetime allowance that needs to be considered. The limit is currently £1,073,100.