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What is the Tapered Annual Allowance?

Watch our video and download our guide to understand how the Tapered Annual Allowance could affect how much tax relief you get if you are a high-earner.

If your income for the current tax year (2020-21) is likely to be greater than £200,000 then the amount you can pay into your pension and receive tax relief on (your annual allowance) in this tax year may be reduced. 

Anyone who will have an 'Adjusted Income' over £240,000 will be affected. This means your allowance will decrease by £1 for every £2 that exceeds £240,000. Those with an 'Adjusted Income' of £312,000 or more will see their allowance reduced to a minimum of £4,000. Anyone with 'Adjusted Income' of less than £240,000 a year will not be affected by the tapered annual allowance.

The definition of income used for this purpose isn’t straightforward. It includes not just your earnings, but any returns from investments you may hold outside of tax-efficient accounts and, critically, the value of any pension contributions made by your employer.

It is important to note that if you're looking to use carry forward to make contributions in excess of your annual allowance for the current tax year then you will need to consider if the amount you can pay in was impacted by the tapering rules in the previous tax years. The allowances in those years was slightly different. Adjusted income was set at £150,000 reducing the annual allowance down to £10,000 when adjusted income reached £210,000.

How does the tapered annual allowance work?

The tapered annual allowance might affect you if you’re a high-earner. Our short video (3:15 min) gives you a whistle-stop tour of how this could affect you.

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Download our tapered annual allowance (TAA) guide

Take a look at our TAA factsheet to help you calculate if you’re affected or not, how much your allowance may drop by and what happens if you exceed the allowance.

Download the guide

The value of investments can go down as well as up, so you may get back less than you invest. Tax treatment and eligibility to invest in a pension depend on personal circumstances. All tax rules may change in future.

This information is not a personal recommendation for any particular product, service or course of action. Pension and retirement planning can be complex, so if you are unsure about the suitability of a pension investment, retirement service or any action you need to take, please call our Workplace Investing Service Centre on 0800 3 68 68 68 or refer to an authorised financial adviser.

Pension money cannot normally be withdrawn until age 55.