The Annual Allowance is the amount you, or anyone on your behalf, can contribute to your pensions each tax year without a tax charge becoming due.
From 6 April 2016, the standard Annual Allowance will be £40,000. However, if your income is over £150,000 including the value of any pension contributions and over £110,000 excluding pension contributions, your Annual Allowance will be reduced by £1 for every £2 that your income exceeds £150,000 up to a maximum reduction of £30,000.
If you are subject to the Money Purchase Annual Allowance, which applies if you have taken income from a pension under the new flexible pension rules since 6 April 2015, this will also be reduced by £1 for every £2 that your income exceeds £150,000. The standard Money Purchase Annual Allowance limits the amount you can add back into money purchase pensions such as personal pensions and SIPPs to £10,000 of your Annual Allowance each tax year. The balance of your Annual Allowance can still be added into defined benefit pensions.
Unused Annual Allowance can be carried forward for up to three years. Note the amount available for carry forward will be based upon the unused tapered Annual Allowance. The Money Purchase Annual Allowance cannot be carried forward.
Details for NHS Pension Scheme members
The tapered Annual Allowance becomes an issue when your income including the value of any pension contributions exceeds £150,000. This is known as your 'adjusted income'. When calculating your adjusted income, the value of your employer pension contribution will be based on the increase in value of your pension rights over the tax year (the 'pension input amount'), less the amount of any contributions you have made, or anyone else has made on your behalf.
The Tapered Annual Allowance will be with us in April 2016 and will likely to mean many doctors will fall into this particular tax trap. If you would like to discuss your Annual Allowance and pension planning in general, then please contact us on firstname.lastname@example.org or 0117 966 5699.
A reminder that from April 2016, if your income is over £150,000 (including the value of any pension contributions) you will be affected by a tapered reduction to your Annual Allowance.