Guidance

Pension schemes: work out your reduced (tapered) annual allowance

Work out how much annual allowance you get for 2016 to 2017 and each later tax year.

To work out if you have a reduced (tapered) annual allowance for a tax year, you’ll need to work out your net, threshold and adjusted income in that tax year.

If your adjusted income is over £150,000 your annual allowance in the same tax year will be reduced.

It will not be reduced if your threshold income for that year is £110,000 or less, no matter what your adjusted income is.

For every £2 your adjusted income goes over £150,000, your annual allowance for that year reduces by £1. The minimum reduced annual allowance you can have is £10,000.

Whatever type of pension scheme you’re in (like a career average scheme) you’ll need to know your pension savings so that you can work out your threshold and adjusted income.

If the pension savings that you’ve made in the tax year are over your reduced annual allowance (and any unused annual allowance from the previous 3 tax years), you should include the amount of pension savings over your available annual allowance on your Self Assessment return.

This amount is added to your taxable income and you will pay Income Tax on it, at the tax rate that applies to you.

Work out your net income

  1. Add up your taxable income for the tax year.
  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 (because your pension scheme was not set up for automatic relief or someone else paid into your pension).

Work out your threshold income

  1. Start with your net income for the tax year.
  2. Deduct the gross amount of your pension savings from all schemes (where tax relief has been given at source).
  3. Deduct the amount of any lump sum death benefits you received from registered pension schemes.
  4. Add any reduction of employment income for pension provision through any relevant salary sacrifice arrangements made after 8 July 2015.
  5. Add any reduction of employment income for pension provision through any relevant flexible remuneration arrangements made after 8 July 2015.

Work out your adjusted income

  1. Start with your net income for the tax year.
  2. Add the amounts of claims made for tax relief on pension savings where they were paid before tax relief was given (because your pension scheme was not set up for automatic relief or someone else paid into your pension).
  3. Add pension savings made to your pension schemes where tax relief was given (because your employer took them out of your pay before deducting Income Tax).
  4. If you are a non-domicile individual (your permanent home is outside the UK), add any relief claimed on pension savings you made to overseas pension schemes.
  5. Add the amount of pension savings your employer made for you.
  6. Deduct the amount of any lump sum death benefits you received from registered pension schemes.

Work out your pension savings

You may receive annual pension savings statements from each of your pension schemes showing your savings for the tax year. If you have not received this information, you can ask your pension administrators for it.

For defined contribution schemes (also known as money purchase schemes), your pension savings are usually the amount of savings made by you or someone else on your behalf (including your employer) during the pension input period (the period over which you measure your pension contributions).

You’ll need to get details of your pension savings from your scheme administrator.

To calculate the pension savings made for you by your employer, start with your total pension savings made during the pension input period and deduct the savings you (or someone else on your behalf) made during this period (excluding your employer).

To find out the amount your pension has increased for defined benefit schemes (like career average schemes), deduct the opening value from the closing value for the pension input period.

From the 2016 to 2017 tax year, the pension input period is 6 April to 5 April (the same as the tax year).

Work out the opening value

The opening value is the amount of pension benefits that have built up so far at the end of the previous pension input period.

  1. Start with your annual pension built up so far at the end of the previous pension input period.
  2. Multiply this amount by 16.
  3. Add any separate lump sum built up at the end of the previous pension input period.
  4. Increase this by the Consumer Price Index for the previous September - this increased amount is your opening value.

Work out the closing value

The closing value is the amount of pension benefits that has built up so far at the end of the pension input period.

  1. Start with your annual pension built up so far at the end of the pension input period.
  2. Multiply this amount by 16.
  3. Add the value of any separate lump sum you would receive - this is your closing value.

Deduct the opening value from the closing value. If the difference is a:

  • negative amount, then your pension savings are nil for that period
  • positive amount, then this is the amount of your pension savings

Use this amount to work out your threshold income and your adjusted income.

Published 27 September 2016
Last updated 6 March 2018 + show all updates
  1. Instructions for defined benefit pension schemes, like career average schemes, have been added.
  2. First published.