Each tax year, HM Revenue & Customs (HMRC) impose an ‘Annual Allowance’ on the level of tax relievable pension savings a person can benefit from in that year.
This is again an aggregate measure over all the ‘Registered pension schemes’ a person is a member of in that tax year.
HMRC have announced the Annual Allowance for the following tax years. Thereafter it will be reviewed every 5 tax years:
2008/09 - £235,000 2009/10 - £245,000 2010/11 - £255,000
If a person’s Annual Allowance is breached in a tax year, the member becomes subject to a 40% tax charge on the excess breach.
What counts?
Only tax relievable contributions made to a SIPP by a member count – so contributions within the member’s ‘Relevant UK earnings’. Also, all employer contributions count as well.
So the Annual Allowance only affects high earners, or those with significant employer contributions. The Annual Allowance does not mean you can contribute up to that figure even though your ‘Relevant UK earnings’ are well under that allowance figure.
‘Pension input periods’:
It is possible to move a contribution paid in one tax year to count against next tax year’s Annual Allowance. You can do this by changing what is called the member’s ‘Pension input period’ under the SIPP. You can only do this for Annual Allowance purposes – you cannot contribute over your ‘Relevant UK earnings’ in a tax year in anticipation of next tax year’s earnings.
Our Fact Sheet explains more on the Annual Allowance and 'Pension input periods'