The Annual Allowance (AA) is the amount by which the value of your pension savings may increase in any one year without you having to pay an excess tax charge.
The AA is set by HM Treasury, and It was increased from £40,000 to £60,000 for the 2023/24 tax year. However, if your taxable income is above £200,000, or you’ve taken ‘flexible benefits’ from any other pension rights you hold elsewhere, your personal AA may be less than the standard £60,000.
If you exceed the AA in a tax year, you may be subject to a tax charge. However, if you haven’t exceeded the AA in any of the previous three tax years, then you’ll be able to use any unused allowance from that year (known as ‘carry forward’) to offset, or even extinguish, any pension savings in excess of the AA; in many cases, this will result in no tax charge being payable at all!
For more details and examples on calculating LTA or AA, you can read our Tax Controls and Pensions savings factsheet.
We’ve also created a Pension savings hub, which helps you understand what to do if your pension savings in the EAPF have exceeded the standard annual allowance (AA) of £60,000.
Visit our Pension savings hub today!