Calculating your
Annual Allowance

Falkirk Wheel, Scotland

Your Annual Allowance is the maximum Pension Input Amount that can be paid each year to all your pension arrangements without incurring a tax charge. You can use the flow chart below to determine your Annual Allowance limit.


Have I taken any of my Defined Contribution pension savings as a taxed cash lump sum, from an income drawdown fund or to buy a short-term annuity?

My Money Purchase Annual
Allowance is £4,000 NB: if you are subject to the Money Purchase Annual Allowance you will have been issued with a certificate by the provider of the pension arrangement

Is my Threshold Income under £110,000?


My Annual Allowance is £40,000


Is my Adjusted Income under £150,000?

My Annual Allowance is £40,000


Your Annual Allowance is reduced by £1 for every £2 your Adjusted Income is over £150,000

Note: Minimum Annual Allowance is £10,000

  • What is a Money Purchase Annual Allowance?

    If you have already taken benefits from a Defined Contribution or Money Purchase arrangement and have been issued with a certificate confirming that you are now affected by the Money Purchase Annual Allowance, please tell us by emailing pensions.helpline@pearson.com so that we can issue you with a Money Purchase Pension Savings Statement each year. Please note the MPAA is a limit to the amount you can add to a defined contribution pension scheme. It does not apply to the amount you have added to a defined benefits arrangement. The MPAA for the 2019/20 tax year is £4,000.

    As this is a complicated area, you may wish to call 0800 0931462 for free guidance from WEALTH at work, who can also provide you with personal tax advice, at your expense. Alternatively, you can use the Money Advice Service part of the Money and Pensions Service at to find an independent financial adviser in your area.

  • What is Threshold Income?

    Threshold Income is broadly your total taxable income, including, for example, any of the following:

    • money you earn from employment (including bonuses). On your P60 this is marked as the figure which should be used for your tax return.
    • benefits you get from your job (i.e. private health insurance)
    • profits you make if you are self-employed
    • most pension income (state, occupational and personal pensions)
    • interest on most savings
    • income from shares (dividend income)
    • rental income
    • income from a Trust

    If your Threshold Income for the tax year is £110,000 or less, then your Annual Allowance is £40,000.

  • What is Adjusted Income?

    If your Threshold Income is over £110,000, then the level of your Adjusted Income will determine what your Annual Allowance is. Your Adjusted Income is broadly your Threshold Income, plus the total value of your Pension Input Amount (aggregated across all your pension arrangements).

  • How will my Annual Allowance reduce?

    Your Annual Allowance is reduced by £1 for every £2 your Adjusted Income goes over £150,000, down to a minimum Annual Allowance of £10,000.

    Some possible scenarios are set out below.

  • Exceeding your Annual Allowance

    If your Pension Input Amount from all pension arrangements exceeds the Annual Allowance then you may be subject to an Annual Allowance tax charge. However, you can Carry Forward any unused Annual Allowance from the three previous tax years to offset pension savings above the Annual Allowance in the relevant tax year.

    You must use up the Annual Allowance in the current Pension Input Period first, then go back to the earliest of the three Carry Forward years available. You must have been a member of a pension arrangement in an earlier year to be able to Carry Forward unused Annual Allowance (although you do not have to have contributed to that pension arrangement). Please ensure that you keep a copy of all your pension savings statements to provide Carry Forward figures in future years.

    If, in a previous tax year, you have exceeded the Annual Allowance and therefore have used some or all of your available Carry Forward, you will need to take this into account in determining unused Carry Forward. If you need help in determining your Carry Forward, please contact the WEALTH at work telephone helpline 0800 0931462 or your financial adviser.

    You will need to review your pension savings statement alongside any statement(s) you may have received from any other providers you have pensions arrangements with. We can only provide you with your Pension Input Amount in the Plan, we cannot calculate whether you exceed the Annual Allowance after allowing for any unused Carry Forward, or the level of tax to apply.

    If your Pension Input Amount for 2019/20 is more than your Annual Allowance, you are required to pay tax on the excess at your marginal tax rate (the highest rate at which you have paid income tax during the 2019/20 tax year). This additional tax payment is referred to as an Annual Allowance tax charge.

  • Examples

    In 2017/18, Chris’ Pension Input Amount of £37,456 exceeded her Annual Allowance of £33,379 by £4,077. However, she could use £4,077 of her available Carry Forward from 2015/16 to ensure she was not liable for an Annual Allowance tax charge.

    For 2018/19, her Pension Input Amount of £38,576 exceeded her Annual Allowance of £32,582* by £5,994. She used £3,940 of her available Carry Forward (£1,600 from 2015/16 and £2,340 from 2016/17) to reduce her excess.

    For 2019/20, her Pension Input Amount of £39,323 exceeded her Annual Allowance of £30,034 by £9,289. She has no available Carry Forward to reduce her excess. Consequently, she is liable for a tax charge on £9,289. Her tax rate is 45%, so her Annual Allowance tax charge amounts to £9,289 x 45% = £4,180.

    Pension Input
    Period
    Annual
    Allowance
    Pension Input
    Amount
    Carry
    forward
    2019/20£30,034£39,323£0
    2018/19£32,582£38,576£0
    2017/18£33,379£37,456£0
    2016/17£37,832£35,492£2,340 (used in 2018/19)
    9 July 2015 to 5 April 2016£0£34,323£5,677 (£4,077 used in 2017/18 and £1,600 used in 2018/19)
    6 April 2015 to 8 July 2015£80,000£8,400n/a

    * How did Chris calculate her Annual Allowance for 2018/19?

    Chris has the following earnings in the tax year 2019/20:

    Gross earnings from employment (minus Chris’s pension contributions): £98,566 (From P60)
    Company Car:£6,890 (From P11D)
    Private medical (benefit in kind):£903 (From P11D)
    Rental income:£24,250
    Total taxable income:£130,609

    Chris exceeds the Threshold Income limit of £110,000, so she needs to know her Adjusted Income which is calculated as: 

    Total taxable income:£130,609
    PIA:£39,3236 (This is provided in her pension savings statement)
    Adjusted Income:£169,932

    Chris’s Adjusted Income is £19,932 above the £150,000 limit so her Annual Allowance reduces to £30,034 (£19,932 ÷ 2 = £9,966, £40,000 – £9,966 = £30,034).

    In 2016/17, Alex’s Annual Allowance of £40,000 exceeded his Pension Input Amount of £22,376 by £17,624, which was available as Carry Forward for future years.

    For 2017/18, Alex’s Annual Allowance of £36,737 exceeded his Pension Input Amount of £28,456 by £8,281, which was available as Carry Forward for future years.

    For 2018/19, Alex’s Pension Input Amount of £39,363 exceeded his Annual Allowance of £20,725 by £18,638. However, he was able to use £17,624, of his available Carry Forward from 2016/17 and £1,014 of his available Carry Forward from 2017/18 to ensure he was not liable for an Annual Allowance tax charge.

    For 2019/20, Alex’s Pension Input Amount of £40,565 exceeded his Annual Allowance of £19,483 by £21,082. However, he was able to use £7,267, of his available Carry Forward from 2017/18 to reduce his excess to £13,815. His tax rate is 45%, so his Annual Allowance tax charge[ amounts to £13,815 x 45% = £6,216. He will have no Carry Forward to use in 2020/21.

    Pension Input
    Period
    Annual
    Allowance
    Pension Input
    Amount
    Carry
    forward
    2019/20£19,483£40,565£0
    2018/19£20,725£39,363£0
    2017/18£36,737£28,456£8,281 (£1,014 used in
    2018/19 and £7,267 used in
    2019/20)
    2016/17£40,000£22,376£17,624 (used in
    2018/19)

    In 2016/17, Jordan’s Pension Input Amount of £44,124 exceeded her Annual Allowance of £10,000 by £34,124. So she had no available Carry Forward.

    For 2017/18, Jordan’s Pension Input Amount of £58,503 exceeded her Annual Allowance of £10,000 by £48,503. So she had no available Carry Forward.

    For 2018/19, Jordan’s Pension Input Amount of £60,000 exceeded her Annual Allowance of £10,000 by £50,003. So she had no available Carry Forward.

    Jordan has exceeded her Annual Allowance in each of the past three years and therefore has no Carry Forward left to use in 2019/20, so she is liable for an Annual Allowance tax charge on £54,476 (£64,476 – £10,000). Her tax rate is 45%, so her Annual Allowance tax charge amounts to £54,476 x 45% = £24,514. She will have no Carry Forward to use in 2020/21.

    Pension Input
    Period
    Annual
    Allowance
    Pension Input
    Amount
    Carry
    forward
    2019/20£10,000£64,476£0
    2018/19£10,000£60,000£0
    2017/18£10,000£58,503£0
    2016/17£10,000£44,124£0

HMRC Annual Allowance calculator

HMRC have created a pension savings Annual Allowance calculator to help you work out your Annual Allowance and whether you have a tax charge.

The calculator will work out:

  • your available Annual Allowance (including any Carry Forward amount)
  • your available Money Purchase Annual Allowance (if applicable to you)
  • the amount of your pension savings on which tax is due (if applicable)
  • your unused 2019/20 Annual Allowance (if applicable). Please note that the calculator has been updated also to provide details for the 2020/21 tax year, which are not relevant to this year’s pension savings statement.

To be able to use the HMRC calculator you will need to know the following information:

  • your Pension Input Amount for all pension arrangements for the tax years you want to check (you will need to get details about any benefits you have built up within any other pension schemes from the administrators of those schemes) Please note that you may need to put in more than three years of history to get an accurate calculation of your Carry Forward
  • if and when you have flexibly accessed your Defined Contribution pension savings
  • if your Threshold Income is more than £110,000 for each year since 2017/18
  • your Adjusted Income for each year since 2017/18 that your Threshold Income is more than £110,000

The HMRC calculator works for members of UK registered pension schemes and qualifying overseas pension schemes. The HMRC calculator cannot be used by members of hybrid schemes.

  • How much has been saved in your pension schemes for the dates you want to check

    You can find your Pearson Pension Plan Pension Input Amount for the last complete tax year, and each of the three previous years, in your pension savings statement.

    You will need to get details about any benefits you have built up with any other pension schemes from the administrators of those schemes.

    If you have already started flexibly accessing some of your Defined Contribution pension savings (for example through flexi-access drawdown or by taking an Uncrystallised Funds Pension Lump Sum), you will be affected a lower Annual Allowance called the Money Purchase Annual Allowance (MPAA). Please note the MPAA is a limit to the amount you can add to a Defined Contribution pension scheme. It does not apply to the amount you have added to a Defined Benefits arrangement.


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