What else can affect the annual allowance calculations

The Tapered Annual Allowance

From April 2016 the standard £40,000 AA was tapered down to a minimum of £10,000 for those with a ‘threshold income’ of over £110,000 and an ‘adjusted income’ of over £150,000, reducing at a rate of £1 for every £2 earned.

To help you understand more about these tax terms and how they are calculated, please see the following:

HMRC Definition of Threshold Income

  1. Calculate your taxable income for the tax year from all sources
  2. Deduct any tax reliefs that apply, like payments made to your pension scheme that had tax relief but were paid before the relief was given
  3. Deduct the gross amount of your pension savings from all schemes (where tax relief has been given at source)
  4. Deduct the amount of any lump sum death benefits you received from registered pension schemes
  5. Add any reduction of employment income for pension provision through any relevant salary sacrifice arrangements made after 8 July 2015
  6. Add any reduction of employment income for pension provision through any relevant flexible remuneration arrangements made after 8 July 2015

Adjusted Income

  1. Calculate your taxable income for the tax year from all sources
  2. Deduct any tax reliefs that apply, like payments made to your pension scheme that had tax relief but were paid before the relief was given
  3. Add the amounts of claims made for tax relief on pension savings where they were paid before tax relief was given
  4. Add pension savings made to your pension schemes where tax relief was given
  5. Deduct the amount of any lump sum death benefits you received from registered pension schemes

In this case the employee is over the annual allowance, so further work is required.In effect of your Adjusted income is greater than £210,000 you are subject to the maximum taper of £30,000 giving you a minimum Annual Allowance of £10,000. In this case the employee is over the annual allowance, so further work is required.

What is carry forward?

If your pension growth exceeds the Annual Allowance in any one year, you can ‘go back’ up to three previous tax years, starting with the furthest year, to see if you have any unused allowance from these years. The maximum amount that can be carried forward is dependent upon the AA limit in the year that you are carrying forward from.

This means that if your pension growth exceeds the £40,000 threshold in any one year, you may not have any extra tax to pay, depending upon your ability to carry forward.

If you are a consistently high earner with a long service, with mixed Scheme membership, your pension growth might be consistently high, meaning that you have very little capacity to carry forward.

If you are paying into an added years, additional pension purchase, or AVC, these will also need to be factored in to the increase of your pension benefits.

Private Pensions

If you are paying to a private pension plan of any sort you do not need to increase by any factors

You simply need to add on the GROSS payments made into the plan during the relevant Pension Input Period (PIP)

Top-ups to the NHS Pension