The Annual Allowance is the amount of pension saving you can make in a single year and receive full tax relief. This includes the pension saving you make in RPF, as well as any benefits you have built up in any other employers’ pension plans or personal pension arrangements.
The Annual Allowance was previously £255,000, but this was reduced to £40,000 from the tax year that started on 6 April 2014. You will be able to carry forward any unused Annual Allowance from the three previous tax years – a move that is designed to help offset any large one-off pension savings which would otherwise take you over the Annual Allowance. However, if your pension savings are still above £40,000 after offsetting any previously unused Annual Allowance in this way, a tax charge will be applied to your pension savings over £40,000. This charge will be equal to the tax rate applied to the top slice of your income. You would be responsible for declaring any tax owed on your self assessment tax return.
The Lifetime Allowance is the amount of overall pension savings you can make and receive full tax relief on, and your pension is tested against this threshold when you retire. Your pension savings from all sources (including other employers’ pension plans and personal pension arrangements, but excluding State pensions) count towards the Lifetime Allowance.
The Lifetime Allowance is currently £1 million. If you go over the Lifetime Allowance you will incur additional tax charges on the excess when you retire.
Please Note: The information above has not been provided as financial advice. If you require advice on how this may affect you, you should consider speaking to an independent financial adviser.