Pension Contribution Tapering
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.