How does the tapered annual allowance work?
The tapered annual allowance might affect you if you’re a high-earner. Our short video gives you a whistle-stop tour of how this could affect you.
Watch time: 3 mins and 31 seconds
What is the Tapered Annual Allowance?
The amount you can contribute to a pension each year and receive tax relief on is limited to the annual allowance. For most people this is usually up to £60,000 but for some high earners this may be reduced. The allowance will be ‘tapered’ according to your income, although everyone will retain an allowance of at least £10,000.
This means the amount you could tax-efficiently invest in your pensions each year, could change from tax year to tax year.
If your income for the current tax year 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 £260,000 will be affected. This means your allowance will decrease by £1 for every £2 that exceeds £260,000. Those with an 'Adjusted Income' of £360,000 or more will see their allowance reduced to a minimum of £10,000. Anyone with 'Adjusted Income' of less than £260,000 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. Remember, tax treatment and eligibility to invest in a pension depend on personal circumstances. All tax rules may change in future.
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 is impacted by the tapering rules in the previous tax years. For more details download our Carry forward guide.
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 tapered annual allowance guideThis information is not a personal recommendation for any particular product, service or course of action. If you’re unsure about what the right approach is for you, you should speak to an authorised financial adviser.
The minimum age you can normally access your pension savings is currently 55, and is due to rise to 57 on 6 April 2028.