What is the Annual Allowance?
The annual allowance is the total amount you can save into all your pensions each year, before a tax charge applies. For the 2024/25 tax year, the annual allowance is £60,000.
Both you and your employer contributions count towards the annual allowance. You can choose to pay in more than the £60,000 allowance, however any contributions above this amount will be subject to a tax charge.
Any unused annual allowance can be carried forward for up to 3 years, as long as you were in a UK pension scheme for those 3 years.
What is the Tapered Annual Allowance (TAA)?
The tapered annual allowance applies if an individual has 'threshold income' over £200,000 and also 'adjusted income' over £260,000 (2024/25 tax year).
Threshold income is total taxable income from all sources, plus the amount of any new salary sacrifice set up after 8 July 2015, minus the gross amount of any member contributions to relief at source pensions.
Adjusted income is total taxable income plus gross member contributions to net pay pension schemes plus employer pension contributions.
If an individual has threshold income over £200,000 and adjusted income over £260,000, they lose £1 of annual allowance for every £2 of adjusted income above £260,000. The minimum tapered annual allowance is £10,000. (2024/25 tax year.)
What is the Money Purchase Annual Allowance (MPAA)?
If you have flexibly accessed a pension, the lower Money Purchase Annual Allowance of £10,000 (2024/25 tax year) applies. This includes:
- Taking a taxable income from flexi-access drawdown. If you take tax free cash and have not taken an income yet from flexi-access drawdown this will not apply until you do take a taxable income.
- Taking more than the Government Actuary Department’s maximum if you are in capped drawdown.
- Taking an Uncrystallised Funds Pension Lump Sum (UFPLS).
Purchasing an annuity or taking all of a pension as a Small Pot lump sum of up to £10,000 does not trigger the MPAA.
For more information on these retirement options, visit our Your retirement options module.
What is the Lump Sum Allowance?
The Lump Sum Allowance (LSA) is the total amount of tax-free lump sums that can be paid from all your pension plans. This is currently set at £268,275, but may be higher if you’ve applied to HMRC for certain protections.
What is the Lump Sum and Death Benefit Allowance?
The Lump Sum and Death Benefit Allowance (LSDBA) is the total amount of tax-free lump sums that can be paid from all your pension plans, including death and certain other lump sum payments (such as for serious ill-health). The limit is currently set at £1,073,100, but may be higher if you have applied to HMRC for certain protections.