Savings limits for 2021/22 tax year

The Annual Allowance (AA)

This is the amount you can add to your pension benefits each year without incurring a tax charge. For the 2021/22 tax year, most people will have an AA of £40,000.

If you are a high earner (e.g. if your income, excluding pension costs is more than around £200,000 per year), you may have a lower, tapered AA. You can check if this applies to you at www.tax.service.gov.uk/pension-annual-allowance-calculator

You can also carry forward any unused AA for up to three years. This allows you to have pension savings in excess of the AA in a certain year and pay no tax. The AA for the current tax year must be used before any previous years’ AA is brought forward.

The Lifetime Allowance (LTA)

This is the total amount of retirement savings you can build up over your working life without incurring an additional tax charge. It includes the value of the benefits you build up in all registered pension schemes and not just the benefits in your current pension scheme. The State Pension does not count towards the LTA.

For the 2021/22 tax year, the standard LTA is £1.073 million. If your pension savings exceed the LTA, this could result in a tax charge of 55% on the excess (25% if you take the excess as income rather than a lump sum). Not many people are likely to be affected by this but, if you think you are, you can find out more at the HM Revenue and Customs website Protect your pension lifetime allowance. Alternatively, you may wish to consider taking advice from a professional financial adviser.

Money Purchase Annual Allowance (MPAA)

This applies if you have taken defined contribution (DC) benefits flexibly, such as through a drawdown arrangement. If you have started to access any benefits flexibly elsewhere and want to continue paying contributions to the Plan, your AA will reduce to £4,000 for defined contribution payments and £36,000 for your defined benefit pension. You will need to notify Buck that you have flexibly drawn benefits elsewhere and they will provide information about your AA.