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Introduction

The annual allowance in relation to registered pension schemes is the maximum amount:

1. •

   by which a member’s benefits can increase in a pension input period (PIP) (in respect of defined benefit schemes)

2. •

   that can be contributed to pension arrangements in a PIP (for defined contribution or money purchase schemes)

without risk of the member suffering a tax charge on this increase in a member’s benefits / amounts contributed.

If the annual allowance is exceeded in a tax year, the individual is at risk of suffering a tax charge (the annual allowance charge). See the Annual allowance charge guidance note.

The purpose of the annual allowance is to set a limit on the extent to which people are able to accumulate additional tax privileged pension funds between one year and the next. So long as these pension inputs do not exceed the annual allowance then tax relief will be granted on the contributions made.

In order to reduce the risk of funds being recycled as a consequence of the introduction of