HMRC Limits on Pensions

Annual Allowance

The Annual Allowance (AA) is the limit of an individual's pension benefits and savings in a tax year. For most people, the AA for the tax year 2020/2021 is £40,000.

Pension benefits and savings in excess of the AA will be subject to income tax at the individual's top rate of tax.

Tapered Annual Allowance for 'high earners'

A lower 'tapered' AA of between £4,000 and £40,000 applies for 'high earners' (individuals with a total 'adjusted' income in the tax year 2020/2021 of £240,000 or more).  Total 'adjusted' income includes income from all sources, such as employment income (salary, bonus etc.) plus the value of any pension savings paid by the individual and those paid by the employer.  The AA is reduced by £1 for every £2 of 'adjusted' income over £240,000.  If adjusted income is £312,000 or over, the AA is reduced to £4,000.  This restriction is subject to an income threshold of £200,000.  If 'threshold income' (total taxable income excluding the value of any pension savings) is less than £200,000, then an individual is not affected by the tapering of the AA.

It is possible to use any carried forward unused allowance from previous years.

If you think that you might be affected by the tapered Annual Allowance, please contact the Group Pensions Team using the following email addresses:

Lifetime Allowance

The Lifetime Allowance (LTA) is the limit of the value of an individual's total pension benefits from all sources when benefits are first brought into payment before an additional tax is payable.  Typically, a 55% tax will be charged on the benefits in excess of the LTA.

From 6 April 2020, the LTA is £1,073,100.

Money Purchase Annual Allowance

The Money Purchase Allowance (MPAA) affects those who access their retirement savings from a pension arrangement, either by taking cash or income drawdown, and who continue to pay pension contributions into a defined contribution pension arrangement.  The MPAA is £4,000 and contributions in excess of this are subject to an annual allowance charge on the excess.  It is not possible to carry forward any unused allowance from previous years in respect of the MPAA.

Scheme Pays

An individual whose pension savings exceed their AA and the AA tax charge is in excess of £2,000, can elect for 'Mandatory Scheme Pays' which allows for all or part of the tax charge to be deducted from the value of the individual's CRISP Account.  Notice to elect must be within a prescribed format through an election notice and for the 2019/2020 tax year must be made no later than 31 July 2021.

CRISP also offers 'Voluntary Scheme Pays' for individuals whose pension savings exceed the Reduced Annual Allowance.  Notice to elect must be within a prescribed format through an application process and the tax charge should be paid by the usual self-assessment tax deadline i.e. by 31 January in the tax year following the tax year in which the charge arose.

For queries about the Scheme Pays options, or to request an election notice, please contact the Group Pensions Team using the following email addresses: