Tapered annual allowance guide
Read our guide to find out whether the tapered annual allowance could affect you and what happens if you exceed the allowance.Download tapered annual allowance guide
The annual allowance of £40,000 may be reduced or ‘tapered’ if your ‘threshold income’ (your annual income before tax less any personal pension contributions and ignoring any employer contribution) is over £200,000.
If it is below £200,000 the tapered reduction will not normally apply.
If your threshold income is above £200,000, then you need to check if your ‘adjusted income’ (your annual income - broadly all income that you are taxed on including dividends, savings interest and rental income - before tax plus the value of your own and any employer pension contributions) is over £240,000. If it is above £240,000, the annual allowance will reduce by £1 for every £2 that your ‘adjusted income’ exceeds £240,000.
The maximum reduction is £36,000 which reduces the annual allowance to £4,000 but only once adjusted income reaches £312,000.
Similar tapering applies to the alternative annual allowance if you are an active member of a defined benefit (final/career average salary) pension.
For more detailed information on the income definitions and how you can calculate your allowance if you think you are affected see our tapered annual allowance guide.
The value of investments can go down as well as up, and you may get back less than you invest. The eligibility to invest in a pension depends on individual circumstances and all tax rules may change in the future. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser. You will not normally be able to withdraw money from a pension until you are 55.