The Government limits how much money you can save into your pension(s) without paying tax. It is your responsibility to check if you’re exceeding these allowances and make sure you pay any charges.

The Annual Allowance (AA)

This is the maximum amount of money you can pay in to all your pension arrangements in one tax year before incurring a tax charge. For the 2021/22 tax year, the AA is £40,000.

If you exceed the AA, then you may have to pay tax on any contributions that take you over the threshold. If you have not used all your AA in the preceding three tax years, you can carry forward any unused allowance into the current tax year to increase your AA for the year.

The Tapered Annual Allowance (Tapered AA)

This affects anyone earning over £200,000 a year before tax (excluding any deductions like pension contributions) or £240,000 a year (including deductions) in the 2021/22 tax year. This allowance sees your Annual Allowance reduced by £1 for every £2 you earn over the threshold. The minimum that your Annual Allowance can be tapered to is £4,000 a year.

The Money Purchase Annual Allowance (MPAA)

This applies if you are flexibly withdrawing any money from a Defined Contribution (DC) pension arrangement. If you are, the amount you can continue to contribute into other DC pension arrangements is lower than the normal AA. The MPAA for the 2021/22 tax year is £4,000.

The Lifetime Allowance (LTA)

This limits the amount of pension benefits that you can take from all your pension arrangements in your lifetime without paying an additional tax charge. For the 2021/22 tax year, the LTA is £1,073,100 and it will stay frozen at that amount until April 2026. If you exceed the LTA, you would incur a tax charge on any money you take out over the threshold.