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Pension Contribution Tapering

24th September, 2019

The annual allowance lets individuals currently contribute up to £40,000 to their pension fund each year and receive tax relief at their highest marginal tax rate.

As of 6 April 2016, tapering came into effect, reducing the annual allowance for high earning individuals. For every £2 of income above £150,000 p.a. £1 of the annual allowance is lost. 

High earners are defined as individuals with an ‘adjusted income’ of over £150,000 and ‘threshold income’ of over £110,000 for the tax year.    

  • Adjusted income – Adjusted income is all income including employer pension contributions less any personal pension contributions.
  • Threshold income – Threshold income is the total income less any personal pension contributions entitled to tax relief at source.

The maximum reduction to the annual allowance is £30,000, therefore individuals earning over £210,000 have a capped maximum annual allowance of £10,000.