Annual Allowance

The Annual Allowance is an annual limit set by HMRC.

Contributions paid in excess of this amount are unlimited but will give rise to a tax charge on the pension scheme member.

The Annual Allowance for the tax year 2016/17 is £40,000, inclusive of your own contribution and any other amounts paid into an approved pension scheme.

Contributions in excess of the Annual Allowance can be made but will be subject to a special tax charge of 40%.

In measuring contributions against the annual allowance, contributions paid to an arrangement from which all benefits are taken in a particular tax year will be ignored. This effectively means that in the fund year in which you retire and take your benefits, there is no charge in respect of any contributions paid in excess of the Annual Allowance for that year.

There is no Annual Allowance in the year of vesting, i.e. contributions to a defined contribution scheme or increases in the value of a pension in a defined benefit scheme that take place in the year benefits are vested will be ignored for the purposes of the annual allowance.