The Annual Allowance is a limit set by the Government on the total amount of pension savings in a tax year that an individual can make tax free into Registered Pension Schemes that he or she is a member of.

Generally, the Annual Allowance limit is £60,000 for 2025/26 and this is considered to be the standard Annual Allowance. Different rates applied for previous years.

However, the standard Annual Allowance may be reduced if:

• you are affected by the Tapered Annual Allowance (see the section below headed “Tapered Annual Allowance” for more details); and/or
• you have ‘flexibly accessed’ any money purchase funds from any of your pension arrangements on or after 6 April 2015 (see the section below headed “Money Purchase Annual Allowance” for more details).

Unless otherwise stated, any reference to ‘Annual Allowance’ in the remainder of these notes means whichever one or more annual limits that apply (the ‘standard Annual Allowance’ limit, the ‘Money Purchase Annual Allowance’ limit or the 'Tapered Annual Allowance' limit).

Your standard Annual Allowance may be tapered (reduced) down from £60,000 to a minimum of £10,000 depending broadly on your taxable income. Generally, this applies to those with certain taxable income (from all sources) above £260,000. More details on this can be found on the following HMRC webpage:

https://www.gov.uk/guidance/pension-schemes-work-out-your-tapered-annual-allowance.

It is your responsibility to determine whether the Tapered Annual Allowance applies to you. You may wish to consider discussing this with a regulated Independent Financial Adviser or specialised tax adviser.

If you have ‘flexibly accessed’ money purchase funds (for example, taking all or part of your fund as a taxed lump sum (known as an Uncrystallised Funds Pension Lump Sum) or taking funds from what is known as a flexi-access drawdown arrangement) from any of your pension arrangements on or after 6 April 2015, you may in certain circumstances have a lower Annual Allowance. From 2023/24 a separate Money Purchase Annual Allowance of £10,000 may apply for money purchase pension savings (including AVCs) with the residual £50,000 applying to your defined benefit pension savings.

The separate Annual Allowance(s) will apply if you have flexibly accessed money purchase funds and your money purchase savings (including AVCs) in any following tax year exceed £10,000, and this produces a higher charge than the standard Annual Allowance calculation. You will still have to test your total input (money purchase and defined benefit) against the normal £60,000 Annual Allowance (or less if you are impacted by the Tapered Annual Allowance).

If you have 'flexibly accessed' money purchase funds previously in another scheme or arrangement you will have received a statement containing certain information. A copy of this statement should have been passed to the managers of each scheme or arrangement you are contributing to or have contributed to after you have 'flexibly accessed' your benefits. If this applies to you and you have not already done so, please forward us a copy of any such statement for our records.

For defined benefit arrangements (such as the UKAEA final salary scheme), the Pension Input Amount is not the contributions which have been made, but is calculated as the difference between:

• your benefits valued on your retirement or the last day of the Pension Input Period, and
• your benefits valued on the first day of the Pension Input Period, uplifted by any increase in the Consumer Prices Index (CPI) for the year ending in September before the start of the tax year.

Where the benefits are calculated as the lump sum plus 16 times the pension at the relevant dates. The figure calculated above cannot be less than zero.

For defined contribution (also known as money purchase) arrangements, the Pension Input Amount is the total contributions paid by the employer and member into the arrangement for the Pension Input Period. Any contributions you have paid to a money purchase arrangement before you first 'flexibly accessed' benefits will be ignored for the purposes of determining whether the Money Purchase Annual Allowance limit has been exceeded in any tax year.

If you have defined benefit and money purchase benefits, the value of each is worked out and then added together. Similarly, if you are in more than one scheme, the amounts for each scheme should be worked out and then added together.

If your pension savings in all schemes exceed the standard Annual Allowance (or if it applied to you, your Tapered Annual Allowance) in a tax year this might not result in an Annual Allowance charge. It is possible to look at the previous three tax years to see if there is any unused Annual Allowance that can be carried forward into the current tax year.

If you have flexibly accessed money purchase funds and your money purchase pension savings made since then exceed the Money Purchase Annual Allowance, you will be subject to the annual allowance charge. You cannot carry forward unused Money Purchase Annual Allowance where this applies to you.

If the amount of your pension savings exceeds the total of your Annual Allowance limit(s), you will receive a Pension Savings Statement annually to advise your Pension Input Amounts for the current and last 3 years.

The Pensions annual allowance calculator on the HMRC website page:

https://www.tax.service.gov.uk/pension-annual-allowance-calculator