The Annual Allowance limits the amount of tax privileges on a member’s ‘pension input’ each year. If the value of a member’s pension input exceeds the Annual Allowance, the excess will be subject to a tax charge. ‘Pension input’ includes:
The capital value of any benefit accrual in defined benefit pension schemes (such as this Scheme). The capital value is calculated by multiplying the increase in the level of your pension entitlement during the tax year by a factor of 16; and
Any other contributions to defined contribution schemes, such as Additional Voluntary Contributions (AVCs) or contributions to any other HMRC Registered Pension Scheme. This may include any pension arrangements that you contribute to on a private basis.
The Annual Allowance for the 2022/2023 tax year is £40,000.
Since April 2014, the Annual Allowance has been set at £40,000 and will continue at this level for most individuals. During the 2022/23 tax year, the Annual Allowance is tapered for individuals with taxable income over £200,000. For every £2 over £200,000, the Annual Allowance is reduced by £1, down to a minimum of £4,000.
If you have pension savings outside of the AA Pension Scheme and have taken advantage of any of the new pension flexibilities, for example income drawdown from a Defined Contribution (DC) pension plan, you will have a reduced Annual Allowance of £4,000 towards any DC pension savings (for example Additional Voluntary Contributions to the Scheme). Your normal contributions to the Scheme are not impacted by the reduction in the Annual Allowance.