3. Annual allowance

You usually pay tax on any private pension savings above the annual allowance - this is currently £40,000 a year.

You can top up your allowance for the current tax year (6 April to 5 April) with any allowance you didn’t use from the previous 3 tax years.

You still only get tax relief on up to 100% of your earnings.

The annual allowance was different in previous tax years.

Tax year Annual allowance
2013-14 £50,000
2012-13 £50,000
2011-12 £50,000
2010-11 £255,000

Use the annual allowance calculators to work out if you can top up your allowance.

If you took a pension using flexible drawdown

You don’t get an annual allowance after you take a pension using flexible drawdown - you’ll pay tax on all new pension savings.

The Pensions Advisory Service has more information about flexible drawdown.

Check how much annual allowance you’ve used

You need your pension statements to work out how much annual allowance you’ve used in a tax year - ask your pension provider for statements if you don’t get them automatically.

  1. Check statements for ‘pension input periods’ that ended during the tax year - pension input periods are set by your pension provider and don’t always match the tax year.

  2. Work out how much annual allowance you used in those pension input periods - what counts towards your allowance depends on the type of pension scheme you’re in.

Do this for all pension schemes you belong to - the total from all schemes is how much annual allowance you’ve used.

Type of pension scheme What counts towards the annual allowance
Most private pension schemes - including all personal and stakeholder schemes and most workplace schemes Total amount of contributions paid in by you or anyone else (including your employer and the government)
Defined benefit and cash balance pension schemes Any increase in the amount your pension provider promises to give you when you retire
Hybrid pension schemes The higher amount out of total contributions and any increase in the amount your pension provider promises to give you when you retire

If you had pension input periods starting before 14 October 2010 and ending in the 2011 to 2012 tax year you work these out differently.

Pay tax if you go above the annual allowance

You’ll get a statement from your pension provider telling you if you go above the annual allowance.

If you’re in more than one pension scheme, ask each pension provider for statements so you can work out how much you’ve gone above the allowance.

Use this information to fill in a Self Assessment tax return. Fill in the ‘Pension savings tax charges’ section - you’ll need form SA101 if you’re using paper forms.

HM Revenue and Customs (HMRC) uses your Self Assessment tax return to work out how much Income Tax you pay.

You can still claim tax relief for pension contributions on your Self Assessment tax return if you’re above the annual allowance - HMRC deducts tax relief you’re owed from Income Tax you owe.

HMRC doesn’t tax anyone who goes above the annual allowance in a tax year if they:

  • retired and started taking a pension because of serious ill health
  • died

If the tax is more than £2,000

You can ask your pension provider to pay HMRC out of your pension savings if both:

  • the tax is more than £2,000
  • you have more than the annual allowance in your pension savings

Ask your pension provider before 31 July to pay tax for the previous tax year. You’ll still need to fill in a Self Assessment tax return.

Rates

The amount you went above the annual allowance is added to your taxable income. You pay Income Tax on taxable income at the tax rate that applies to you.