The pension inputs in a pension input period ending in the tax year are measured against the annual allowance for the tax year. The tax charge recoups, in a broad way, the amount of tax relief given to the part of the annual increase in pension savings that is over the annual allowance. From 6 April 2018, the standard Lifetime Allowance is indexed annually in line with the Consumer Prices Index (CPI). If the individual’s total pension input amount is more than their available annual allowance they will have to pay the annual allowance charge - but only on the amount over their available annual allowance. The maximum value of pension savings that you can build up without incurring a tax charge at the time you draw out your savings as cash or pensions (and without leaving a tax charge for your beneficiaries if you die before age 75). their ‘adjusted income’ is more than £240,000 (£150,000 for 2016-17 to 2019-20). As Bob’s £70,000 ‘other inputs’ are less than his available annual allowance there is no annual allowance charge in respect of them for the tax year. Your alternative Annual Allowance for a tax year is nil if the tapered Annual Allowance, applying for the same tax year, means your reduced Annual Allowance is £10,000. You’ve accepted all cookies. beta To help us improve GOV.UK, we’d like to know more about your visit today. How to check if you have unused allowances to carry forward at the end of the year has also been updated. From tax year 2016-17 a reduced tapered annual allowance applies to certain high-income individuals (see The tapered annual allowance below for more information). From April 2020 the £150,000 limit is being raised to £240,000 and the Annual Allowance is reduced to £4,000 when your income is £312,000 or more. For 2019-20 onwards individuals can carry forward unused annual allowance from the previous three tax years. This is more than the £50,000 annual allowance for that tax year. To find out the amount of the annual allowance charge the individual needs to add the amount of the excess pension savings to the amount of their taxable income. Similar tapering applies from April 2016 to the Alternative Annual Allowance if you are in a defined benefit pension. This is the standard annual allowance minus the MPAA of £4,000, so currently the alternative annual allowance is £36,000. Working out if the annual allowance charge is payable for a tax year A pension arrangement where your employer promises you a pension pot of a specified amount, when you reach retirement age. Pension savings are called ‘pension input amounts’ by the legislation. For tax years before 2016-17, pension input periods did not have to align with the tax year. Sign up to our newsletter for daily updates straight to your inbox, Work out your allowances if you’ve flexibly accessed your pension, Remote worker tax to help lower-paid employees, £66m shortfall as Croydon Council fails to balance budget, Accounting for Brexit part 3: impact for auditors, Public sector contractors given access to 80% furlough scheme, Covid-19: Coronavirus Act 2020 allows for HMRC extended powers, Q&A: Coronavirus Job Retention Scheme and furlough, Q&A: Self-employment Income Support Scheme, Hidden tax risks of raiding the pension pot, Higher rate pension relief threat to fund coronavirus bill, Pension schemes newsletter 122 – July 2020, Nunn: time to review pension annual allowance, 6.3m teens to access trust fund money pot, for defined benefit pensions - the increase in value of your benefits in a tax year (if the value decreased your pension savings will be nil), for defined contribution pensions - the total contributions, including any tax relief, made by you or a third party (like your employer) in a tax year, the day after they first flexibly accessed their pension to the end of the tax year; or.