What is it?
An Annual Allowance for pension savings applies each year, which is based on a period of 12 months from the the beginning of tax year. In other words it is the amount of pension contributions available on pension savings for each tax year. The Annual Allowance for most is currently £40,000 (correct as at 2017/18 tax year). This is the maximum you or someone else, e.g. the Company, can contribute to all your pensions in one tax year, without incurring a tax charge. It also includes any benefits accrued in a final salary pension.
However, from April 2016 the Government will be introducing a a new type of Annual Allowance which will only impact individuals who have total earnings of £150,000 and above. This is called Tapering Annual Allowance and the rules around this are very complex. Further information regarding tapering can be found by clicking here.
In addition, since the Freedom & Choice options were introduced in April 2015, the Government introduced another type of Annual Allowance called the Money Purchase Annual Allowance. More information can be found below.
Before we explain how your Annual Allowance should be calculated please make a note of these key words:
Pension Input Amount (PIA) = this is the amount you can contribute to all your pension arrangements in one year without incurring a tax charge, or for final salary purposes, the amount of benefits accrued.
Pension Input Period (PIP) = this is the period over which a PIA is calculated for a pension scheme. For the Kingfisher Pension Scheme, it is from 1 April to 31 March for any given year.