Key Points about the Pension Annual Allowance

Each tax year, there is a limit on the amount you can contribute to and/or accrue in a pension.  This is the ‘Annual Allowance’.  If you exceed the Annual Allowance, the excess is subject to an income tax charge at your highest rate of tax (20% for a basic rate taxpayer, 40% for a higher rate tax payer or 45% for an additional rate taxpayer).

Doctors and other high earners in the NHS, especially those in the NHS Pension Scheme, are amongst some of the most likely to be affected by the Annual Allowance.  It could therefore pay to make sure you are familiar with the rules.

How much of the Annual Allowance is used up by your NHS Pension?

The NHS Pension Scheme will calculate the amount by which your NHS Pension has increased in value over the relevant time period.  This ‘pension input amount’ is what counts towards your Annual Allowance.  It is a complicated calculation but roughly speaking it compares the value of your accrued pension benefits (the income and tax-free cash lump sum you are set to receive in retirement) at the beginning and end of the pension input period.  The closing figure is typically higher as you have gained an extra year’s service and can in some cases be considerably higher if you have received a salary increase or pay award. 

What else counts towards the Annual Allowance?

Any contributions you have made to any other pension plan (such as a personal pension or SIPP), any contributions that anyone else has made to a pension held in your name on your behalf and accrual in any other work-based pension schemes will also count towards the Annual Allowance.

How much is the Annual Allowance?

The Annual Allowance is usually £40,000, but there are several variations as outlined below:

  • Special rules for the 2015/16 tax year
  • Carrying forward unused allowance from previous years
  • Tapered reduction in the Annual Allowance for high earners from 2016/17.  This is crucial information for doctors earning £110,000 or more
  • The Money Purchase Annual Allowance 

The pension input period for the NHS Pension Scheme has traditionally been from 1 April to 31 March the following year.  This year, the Chancellor announced that all pension input periods should be aligned with the tax year from 6 April 2016 onwards.  To bring this into effect, the year has been split in two: a pre-alignment period of 1 April 2015 – 8 July 2015 (the date of the Chancellor’s announcement) and a post-alignment period of 9 July 2015 – 5 April 2016.  From then on the pension input period will run in line with the tax year (6 April to 5 April the following year).

Both the pre-alignment and post-alignment periods effectively have their own £40,000 allowance.  After 5 April 2016, the NHS Pension Scheme will calculate your pension input amount for the whole year then divide it proportionately between the pre- and post-alignment periods. 

If you contribute to or are a member of any other pension schemes you will need to contact them directly to check which allowance, and how much, you have used.  Please contact us if you would like further help, information or advice. 

  • Carrying forward unused allowance from previous years

If your pension contributions are usually within the Annual Allowance but will be higher in a given tax year, you can carry forward your unused allowance from the previous three tax years.  Please contact us if you would like advice on this area. 

  • Tapered reduction in the Annual Allowance for high earners from 2016/17.  This is crucial information for doctors earning £110,000 or more 

From next tax year (starting 6 April 2016) the Annual Allowance of £40,000 will be reduced by £1 for every £2 that your ‘adjusted income’ exceeds £150,000.  The maximum reduction is £30,000, meaning those with an adjusted income of £210,000 or more will be left with an Annual Allowance of £10,000.

Your adjusted income is your total income from all sources e.g. salary, rental income and investment income, plus the value of any pension contributions made by you and your employer.  

However, there will be no reduction if your adjusted income is above £150,000 but your ‘threshold income’ is below £110,000.  Your threshold income is your total income from all sources without the addition of pension contributions. 

For further information and advice on this area please contact us. 

  • The Money Purchase Annual Allowance 

On 6 April 2016 new rules were introduced that allow holders of money purchase pension plans (e.g. personal pensions, SIPPs and stakeholder pensions) to access as much of their pension savings as they like at any time once over the minimum pension age (currently 55).  25% of the pension can be paid out tax-free, with the remainder subject to income tax.  

Those who have ‘flexibly accessed’ pension income under the new rules are then subject to a Money Purchase Annual Allowance of £10,000.  This reduced allowance is designed to stop people from taking pension benefits then using these to fund further pension contributions. 

The remaining part of the Annual Allowance is still available for accrual in defined benefit pensions, i.e. work pensions that will pay out a guaranteed income based on your salary and length of service like the NHS Pension Scheme. 

Please contact us if you think this might affect you and you would like advice on this area.

What if you might exceed the Annual Allowance?

The best course of action will depend on your personal circumstances.  We offer advice on this area so please get in touch on or 0117 966 5699.  In some cases, particularly for NHS Pension Scheme members, a charge may be unavoidable; however, we can help you minimise your tax bill and make sure that the situation is not exacerbated by any other decisions you are planning for your income, pensions and retirement planning.

More News
Can doctors trust the rising market? Monday, July 23, 2018
Quote Mark
  • "We have been very impressed with the personal service, attention to detail and comprehensive evaluation of our financial circumstances. We would certainly appreciate ongoing help and support from Richard over the future." Jason Kendall (Consultant in Accident and Emergency), Southmead Hospital
  • "Richard provides a very convenient and personal service. Richard has good knowledge and has the ability to go through reasoning for any recommendations." Tim Mitchell (GP), Montpelier Health Centre
  • "Richard provides an excellent service, prompt and flexible. Although the level of technical knowledge is impressive, answers to our questions are presented in a straightforward manner, without overwhelming us with information." Mary Gainsborough (Consultant in Paediatrics), Southmead Hospital
  • "Richard gives me an excellent personal service in my own home. His advice and explanations have been excellent. Richard also has excellent technical knowledge – who wouldn’t be happy?" Charles Record (GP), Frome Valley Medical Centre
  • "Richard provides an excellent, personal service. He responds very quickly and attentively to queries and very much keeps me up to date with important matters that affect me - such as the latest changes to pensions, investments and taxation. Recommendations are delivered in a timely, effective manner - usually face to face in my own home." Professor Gianni Angelini (Head of Cardiothoracic Surgery), BRI
  • "It is very convenient for me to be seen at home and Richard is very flexible with timings - especially when unexpected things crop up at the hospital. Meetings are friendly and relaxed with my long-term best interests very much at the heart of discussions." Professor Gianni Angelini (Head of Cardiothoracic Surgery), BRI
  • "We have found it far more reassuring having a local adviser rather than a national firm. We have found the service excellent and Richard answers all the questions we want answering. Richard's technical knowledge is excellent, he has detailed knowledge of pensions." Paul Male and Helen Lewis (GPs), Thornbury Health Centre
  • "The personal touch counts for a lot and the willingness to visit us at home is much appreciated. Richard provides an excellent, friendly, accessible service, not encumbered by jargon or salesmanship." Professor Peter Mathieson (Honorary Professor of Medicine), University of Bristol
  • "I can recommend Richard as providing measured, balanced independent financial advice. He listens very carefully and tailors advice appropriately in a knowledge-based manner. He is very accessible and gives his clients time and clarity in order to make the most sensible decisions for themselves based on the available facts." Andrew Medford (Consultant in Respiratory Medicine), Southmead Hospital
  • "Richard now knows me and understands my financial position. I have complete trust in his advice. The level of service I have experienced is second to none. We have received regular reviews in our own home, speedy and thorough advice to any queries." John Rees (General Practitioner, Specialist in Urology ), Blackwell and Nailsea Medical Group
  • "The advice I have received has dramatically altered my personal protection policies for the better and reduced my personal tax liability." John Rees (General Practitioner, Specialist in Urology ), Blackwell and Nailsea Medical Group
  • "I appreciate Richard's local knowledge and the fact that he is in contact with a lot of local general practitioners which is useful for networking. He is also very knowledgeable about the different pension schemes and their pros and cons." Fiona Hayes (General Practitioner) Bristol University Student Services
  • "I have enjoyed the process of dealing with a local advisor and it has not felt like a box ticking exercise. The service has been excellent. The great flexibility to come to my home at a time suitable to my working day has set this company apart from others I have dealt with in the past. The technical knowledge provided has been expertly tailored to my requirements and financial situation. The manner in which it has been delivered has also been first rate. " Beth Harrison (General Practitioner) Montpellier Health Centre
  • "We have regular meetings with the same adviser who knows our profile and keeps our requirements in mind with the plans he makes. The reviews are simple to organise and are always at a convenient time and location." Mike Bould (Orthopaedic Surgeon) Western General Hospital
  • "The service I have received from Wealth West is excellent! they are more personable and accessible than large firms and are not pushy at all. They also have a very good breadth and depth of knowledge." Billy and Annie Headdon (Anaesthetics and Intensive Care Trainee, General Practitioner) Montpelier Health Centre
  • "My experience of the service has been excellent. I have been able to ask many questions and have received excellent advice on my financial situation. The technical knowledge of Wealth West Medical is excellent. Anyone who can help my investments grow in the current environment clearly knows what they are doing. I would highly recommend Richard and Wealth West Medical." Linda Buczek (General Practice Manager) Bishopston Medical Practice
  • "The technical knowledge of Wealth West Medical is very good. Richard keeps up to date with the changes to the NHS pension scheme and new legislation." Melanie Lockett (Consultant) Southmead Hospital
  • "Wealth West Medical offers a friendly, helpful and efficient service. Richard keeps in touch at regular intervals and has a very good knowledge of pensions and investments." Rachel Brown (General Practitioner) Montpelier Health Centre
  • "Richard comes to my house for meetings and it is nice to see a familiar face. He remembers my details, and advises over the long term. Richard has a detailed understanding of my particular pension plan and has explained this very clearly to me. He has also helped me to manage tax payments for annual allowance and pension protection." Hugh Herzig (Consultant Psychiatrist) Southmead Hospital
  • .