Pension Savings Statement

Calculating your
Annual Allowance

Falkirk Wheel, Scotland

Your Annual Allowance is the maximum Pension Input Amount that can be paid each year to all your pension arrangements without incurring a tax charge. You can use the flow chart below to determine your Annual Allowance limit.


Have you have already flexibly accessed benefits from a defined contribution (DC) arrangement?

My Money Purchase Annual
Allowance is £4,000 NB: if you are subject to the Money Purchase Annual Allowance (MPAA) you will have been issued with a certificate by the provider of the pension arrangement


Is my Threshold Income under £200,000?

My Annual Allowance is £40,000


Is my Adjusted Income under £240,000?

My Annual Allowance is £40,000


Your Annual Allowance is reduced by £1 for every £2 your Adjusted Income is over £240,000

Please note that the minimum Annual Allowance is £4,000

  • What is a Money Purchase Annual Allowance?

    If you have already flexibly accessed benefits from a defined contribution or a money purchase arrangement and have been issued with a certificate confirming that you are now affected by the Money Purchase Annual Allowance (MPAA), please tell us by uploading a copy of the certificate here so that we can issue you with a Money Purchase Pension Savings Statement each year. Please note MPAA is a limit to the amount you can add to a defined contribution or money purchase arrangement. In certain limited circumstances, the MPAA can also affect the amount that you can save in a defined benefit arrangement. If you believe that you may be affected by this, please contact the pensions team. The MPAA for the 2020/21 tax year is £4,000.

    As this is a complicated area, you may wish to call 0800 0931462 for free guidance from WEALTH at work, who can also provide you with personal tax advice, at your expense. Alternatively, you can find an independent financial adviser in your area on the MoneyHelper website. You will have to pay for the advice or services you receive from the adviser.

  • What is Threshold Income?

    Threshold Income is broadly your total taxable income, including, for example, any of the following:

    • money you earn from employment (including bonuses). On your P60 this is marked as the figure which should be used for your tax return.
    • benefits you get from your job (i.e. private health insurance)
    • profits you make if you are self-employed
    • most pension income (state, occupational and personal pensions)
    • interest on most savings
    • income from shares (dividend income)
    • rental income
    • income from a Trust

    If your Threshold Income for the tax year is £200,000 or less, then your Annual Allowance is £40,000.

  • What is Adjusted Income?

    If your Threshold Income is over £200,000, then the level of your Adjusted Income will determine what your Annual Allowance is. Your Adjusted Income is broadly your Threshold Income, plus the total value of your Pension Input Amount (aggregated across all your pension arrangements).

  • How will my Annual Allowance reduce?

    Your Annual Allowance is reduced by £1 for every £2 your Adjusted Income goes over £240,000, down to a minimum Annual Allowance of £4,000.

    Some possible scenarios are set out below.

  • Exceeding your Annual Allowance

    If your Pension Input Amount from all pension arrangements exceeds your Annual Allowance then you may be subject to an Annual Allowance tax charge. However, you can Carry Forward any unused Annual Allowance from the three previous tax years to offset pension savings above the Annual Allowance in the relevant tax year.

    You must use up the Annual Allowance in the current Pension Input Period first, then go back to the earliest of the three carry forward years available. You must have been a member of a pension arrangement in an earlier year to be able to Carry Forward unused Annual Allowance (although you do not have to have contributed to that pension arrangement). Please ensure that you keep a copy of all your pension savings statements to provide Carry Forward figures in future years.

    If in a previous tax year, you have exceeded the Annual Allowance and therefore have used some or all of your available Carry Forward, you will need to take this into account in determining unused Carry Forward. If you need help in determining your Carry Forward, please contact the WEALTH at work telephone helpline 0800 0931462 or your financial adviser.

    You will need to review your pension savings statement alongside any statement(s) you may have received from any other providers you have pensions arrangements with. We can only provide you with your Pension Input Amount in the Plan, we cannot calculate whether you exceed the Annual Allowance after allowing for any unused Carry Forward, or the level of tax to apply.

    Details of the following limits from previous years may help you to calculate any Carry Forward available:

    Tax yearMinimum Annual
    Allowance
    Threshold
    Income
    Adjusted
    Income
    2017/18£10,000£110,000£150,000
    2018/19£10,000£110,000£150,000
    2019/20£10,000£110,000£150,000

    If your Pension Input Amount for 2020/21 is more than your Annual Allowance, you are required to pay tax on the excess at your marginal tax rate (the highest rate at which you have paid income tax during the 2020/21 tax year). This additional tax payment is referred to as an Annual Allowance tax charge.

  • Examples

    For 2018/19, her Pension Input Amount of £16,884 exceeded her Annual Allowance of £10,000 by £6,884. She used £6,884 of her available Carry Forward from 2015/16 to ensure that she was not liable for an Annual Allowance tax charge. This was the last time that she could use the Carry Forward from 2015/16.

    For 2019/20, her Pension Input Amount of £17,451 exceeded her Annual Allowance of £11,741 by £5,710. She used £2,326 of her available Carry Forward from 2016/17 to reduce her excess to £3,384. She paid an Annual Allowance tax charge of £1,523 as her tax rate was 45%. She had no Carry Forward available from this tax year.

    For 2020/21, her Pension Input Amount of £17,850 did not exceed her Annual Allowance of £40,000* and she is not liable for an Annual Allowance tax charge. She will also be able to carry forward £22,150.

    Pension Input
    Period
    Annual
    Allowance
    Pension Input
    Amount
    Carry
    forward
    2020/21£40,000£17,850£22,150
    2019/20£11,741£17,451£0
    2018/19£10,000£16,884£0
    2017/18£10,292£16,191£0

    * How did Chris calculate her Annual Allowance for 2020/21?

    Chris has the following earnings in the tax year 2020/21:

    Gross earnings from employment (minus Chris’s pension contributions): £180,710 (From P60)
    Company Car:£9,000 (From P11D)
    Private medical (benefit in kind):£900 (From P11D)
    Total taxable income:£190,610

    Chris does not exceed the new Threshold Income limit of £200,000, so her Annual Allowance is £40,000.  

    For 2018/19, Alex’s Pension Input Amount of £28,944 exceeded his Annual Allowance of £10,000 by £18,944. As Alex did not have any available Carry Forward and his tax rate was 45%, he paid an Annual Allowance tax charge of £8,525.

    For 2019/20, Alex’s Pension Input Amount of £29,916 exceeded his Annual Allowance of £10,000 by £19,916. As Alex did not have any available Carry Forward and his tax rate was 45%, he paid an Annual Allowance tax charge of £8,962.

    For 2020/21, Alex’s Pension Input Amount of £30,672 exceeded his Annual Allowance of £25,099* by £5,573. As Alex did not have any available Carry Forward and his tax rate was 45%, his Annual Allowance tax charge amounts to £5,573 x 45% = £2,508.

    Pension Input
    Period
    Annual
    Allowance
    Pension Input
    Amount
    Carry
    forward
    2020/21£25,099£30,672£0
    2019/20£10,000£29,916£0
    2018/19£10,000£28,944£0
    2017/18£10,000£27,756£0

    * How did Alex calculate his Annual Allowance for 2020/21?

    Alex has the following earnings in the tax year 2020/21:

    Gross earnings from employment (minus Alex’s pension contributions): £223,230 (From P60)
    Private medical (benefit in kind):£900 (From P11D)
    Rental income:£15,000
    Total taxable income:£239,130

    Alex exceeds the Threshold Income limit of £200,000, so he needs to know his Adjusted Income which is calculated as: 

    Total taxable income:£239,130
    PIA:£30,672 (This is provided in his pension savings statement)
    Adjusted Income:£269,802

    Alex’s Adjusted Income is £29,802 above the £240,000 limit so his Annual Allowance reduces to £25,099 (£29,802 ÷ 2 = £14,901, £40,000 – £14,901 = £25,099).

    For 2018/19, Jordan’s Pension Input Amount of £22,991 did not exceed her Annual Allowance of £28,707. She therefore did not have an Annual Allowance tax charge and had £5,716 available to carry forward.

    For 2019/20, Jordan’s Pension Input Amount of £30,044 exceeded her Annual Allowance of £28,523 by £1,522. She used £1,522 of her available Carry Forward from 2018/19 to ensure that she was not liable for an Annual Allowance tax charge. She had £4,194 available to carry forward.

    For 2020/21, Jordan’s Pension Input Amount of £51,480 exceeded her Annual Allowance of £40,000* by £11,480. She was able to use her Carry Forward of £4,194 to reduce this to £7,286. Her tax rate is 45%, so her Annual Allowance tax charge amounts to £7,286 x 45% = £3,279. She will have no Carry Forward to use in 2021/22.

    Pension Input
    Period
    Annual
    Allowance
    Pension Input
    Amount
    Carry
    forward
    2020/21£40,000£51,480£0
    2019/20£28,523£30,044£0
    2018/19£28,707£22,991£5,716 (£1,522 used in 2019/20 and £4,194 used in 2020/21)
    2017/18£17,493£48,924£0

    * How did Jordan calculate her Annual Allowance for 2020/21?

    Jordan has the following earnings in the tax year 2020/21:

    Total taxable income:£138,190 (From P60)
    Private medical (benefit in kind):£900 (From P11D)
    Rental income:£5,000
    Adjusted Income:£195,570

    Jordan does not exceed the new Threshold Income limit of £200,000, so her Annual Allowance is £40,000.

    Sam accessed a DC pension pot that he held with another provider and took the whole amount as a taxable lump sum. This meant that he triggered the Money Purchase Annual Allowance of £4,000. If he pays contributions to the Plan in excess of £4,000, he is liable for the Annual Allowance tax charge at his marginal rate of tax.

    In 2020/21, Sam and Pearson paid a total of £10,000 in contributions to the Money Purchase 2003 (MP03) Section. His Annual Allowance tax charge is £10,000 – £4,000 = £6,000 x 40% = £2,400.

    As he has triggered the Money Purchase Annual Allowance, he is not able to use any Carry Forward to offset against the Annual Allowance tax charge.

HMRC Annual Allowance calculator

HMRC have created a pension savings Annual Allowance calculator to help you work out your Annual Allowance and whether you have a tax charge.

The calculator will work out:

  • your available Annual Allowance (including any Carry Forward amount)
  • your available Money Purchase Annual Allowance (MPAA) (if applicable to you)
  • the amount of your pension savings on which tax is due (if applicable)
  • your unused 2020/21 Annual Allowance (if applicable).

To be able to use the HMRC calculator you will need to know the following information:

  • your Pension Input Amount for all pension arrangements for the tax years you want to check (you will need to get details about any benefits you have built up within any other pension schemes from the administrators of those schemes) Please note that you may need to put in more than three years of history to get an accurate calculation of your Carry Forward
  • if and when you have flexibly accessed your defined contribution (DC) pension savings
  • if your Threshold Income is more than £110,000 for each year since 2018/19 and 2019/20, and more than £200,000 for tax year 2020/21
  • your Adjusted Income for each year that your Threshold Income is more than £110,000 for tax years 2018/19 and 2019/20, and more than £200,000 for tax year 2020/21

The HMRC calculator works for members of UK registered pension schemes and qualifying overseas pension schemes. The HMRC calculator cannot be used by members of hybrid schemes (which offer a mixture of defined benefit (DB) and DC pension rights).

  • How much has been saved in your pension schemes for the dates you want to check

    You can find your Pearson Pension Plan Pension Input Amount for the last complete tax year, and each of the three previous years, in your pension savings statement.

    You will need to get details about any benefits you have built up with any other pension schemes from the administrators of those schemes.

    If you have already flexibly accessed benefits from a defined contribution (DC) or a money purchase arrangement and have been issued with a certificate confirming that you are now affected by the Money Purchase Annual Allowance (MPAA), please tell us by uploading a copy of the certificate here so that we can issue you with a Money Purchase Pension Savings Statement each year. Please note MPAA is a limit to the amount you can add to a defined contribution or money purchase arrangement. In certain limited circumstances, the MPAA can also affect the amount that you can save in a defined benefit (DB) arrangement. If you believe that you may be affected by this, please contact the pensions team. The MPAA for the 2020/21 tax year is £4,000.


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