ANNUAL ALLOWANCE
The Annual Allowance (AA) is a limit on the total benefits that can be built up in a defined benefit pension scheme and the contributions that can be paid to a defined contribution pension scheme. The standard AA is currently £40,000. Any pension savings above the AA are subject to additional tax charges.
Scheme pays
If you are subject to an AA tax charge, you can either pay this yourself directly to HMRC using the self-assessment system or in certain circumstances, you can ask your pension scheme to pay the charge on your behalf - this is known as ‘Scheme pays’ and the pension is reduced accordingly.
Scheme pays can only be used when there is an AA tax charge payable from the NGE Group of at least £2,000. If you choose to use Scheme pays, your decision cannot be revoked or withdrawn at a later date, although it may be amended if the amount of your AA tax charge changes.
You can find out more information from HMRC (you will be directed to an external site).
The tapered Annual Allowance
For members who have a total taxable income of more than £240,000, the AA will reduce by £1 for every additional £2 of taxable income above £240,000. The maximum reduction will be £36,000, so anyone with an income of £312,000 or more will have an AA of £4,000.
The income components used to assess an individual’s exposure to the AA mean that anyone with taxable income over £200,000 may be affected. The income components include but are not limited to personal sources of income (such as investment income or income from a buy-to-let property), together with employment-related income.
Where can I get more information?
If you think that you may be affected by the AA, please contact Railpen for more information.
To find out the limits for the current tax year you can visit:
https://www.gov.uk/tax-on-your-private-pension/annual-allowance