Pension Tax Allowances

The Annual Allowance (AA) represents the maximum amount of pension savings that can be made each tax year without paying extra tax. The standard AA for the 2024/2025 tax year is £60,000.

There are certain situations where you may have a different AA.

It could be higher than £60,000, as you can carry forward any 'unused' AA from up to the three previous tax years.

It could be lower than £60,000. From 6 April 2020:

• If you have taxable earnings over the tax year above £200,000 and combined taxable earnings plus pension savings (referred to as your 'adjusted earnings') over the tax year above £260,000. In this situation, your AA may be 'tapered', so reduced below £60,000. The standard AA is reduced by £1 for every £2 that your adjusted earnings for the tax year exceed £260,000, down to a minimum of £10,000 for anyone with adjusted earnings for the tax year of £360,000 or more. (Unused AA for previous years can still be carried forward to 'top up' a tapered AA for the current year.)
• If you are already receiving benefits from a 'money purchase' or 'defined contribution' arrangement and you accessed your benefits 'flexibly' (for example, through flexi-access drawdown or by taking an uncrystallised funds pension lump sum), the 'money purchase annual allowance' (MPAA) of £10,000 will apply to any further pension savings you make to this type of arrangement.

The Lifetime Allowance (LTA) represented the total value of all your personal and workplace pensions (but not State Pension) which you could build up without paying extra tax. When you elected to draw your pension the values of all your pension funds were totalled and checked against the LTA.

With effect from 6 April 2024 the LTA was abolished.