Annual Allowance

The Annual Allowance (AA) refers to the amount by which a member's pension can grow within a Pension Input Period (PIP). The PIP was aligned with the tax year from 8 July 2015 onwards. If the pension growth in a PIP is greater than the AA available to the member, then they will be subject to a tax charge on the excess.

On 6 April 2016 a ‘taper’ to the AA was introduced. For information on how the taper operated until 6 April 2020, please see our briefing notes.

On 11 March 2020 the chancellor of the Exchequer announced an increase to the level of income that can be earned before ‘tapering’ applies. Both the adjusted and threshold income levels increased by £90,000, with effect from 6 April 2020 (2020/21 tax year), making them £240,000 and £200,000 respectively. This means that those individuals with a threshold income of between £110,000 and £200,000, and adjusted income between £150,000 and £240,000, will no longer be subject to the tapered AA

The taper works by reducing an individual’s AA by £1 for every £2 of adjusted income over £240,000 although those with a threshold income of £200,000 or less will be exempt from the taper no matter their level of adjusted income. The AA can only be tapered down to a minimum of £4,000 – this will be the case for those with an adjusted income above £312,000.

A Pension Savings Statement (PSS) is only issued to members who we identify as having exceeded the standard AA, which has remained at £40,000 since the 2016/17 tax year. Please note that this assessment is carried out using the information provided to us, and we can't be held accountable for errors or omissions in the service and salary information provided by your employer. There will be members who may not know what their AA is until after the end of the tax year in question and therefore will not know where they fall within the tapered range. Members can request a PSS at any time.

As a result of the introduction of tapering the Department for Education now allows members to make Scheme Pays elections on a ‘voluntary’ basis. This applies from the 2016/17 PIP onwards. It must be noted that we cannot accept a voluntary Scheme Pays election for any year prior to the 2016/17 tax year.

Last Updated: 25/02/2021 10:30

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