How do the pension tapered annual allowance changes affect me?

High level summary

If you have not ‘flexibly accessed’ your pensions (you should know if you have) and have total income under £200,000 after deducting your payments made into a personal scheme you should not be tapered and you have an annual allowance of £40,000 (and usually three years of allowances to bring forward) for the 2020/21 tax-year.
If you have income over £312,000 including any employer contribution (or pension input amount to defined benefit schemes) then you would only have an annual allowance of £4,000.

If you have income after deducting your payments above £200,000 then you need to calculate a second income figure (adjusted income) which includes employer contributions (or pension input amount to defined benefit). If this adjusted income is over £240,000 then you would lose (from £40,000) £1 of allowance for every £2 of income (to the nearest pound, rounded down).

This means an individual could theoretically have anything between £40,000 and £4,000 in £1 increments (36,001 different levels!).

For those who have flexibly accessed their pensions there is a limit of £4,000 and no ability to carry forward unused allowances, this has not changed.

The need for advice

The rules are a total mess, but pensions are highly efficient. Most people with income over £40,000 can get at least a 40% benefit from paying to a pension (£60 becomes £100) and this could be more if they pay higher levels of tax, have a matching employer contribution and/or are in an eligible ‘salary exchange’ arrangement.
However due to subsequent tinkering it is essential to take utmost care in calculating and tax or financial advice is invariably safest. Up to £160,000 of contributions can be made in a single tax year, and with good planning this can be a significant increase to many individuals planning.

To highlight the issues, here is a summary of the rules, only for the last ten years. For some people every single year needs to be considered discreetly, in addition there is a lifetime limit which can be tested as late as age 75, with a 25% penalty (or more) potentially applying at that age, on death, or drawing benefits if sooner.

• Tax year 2020/21: £40,000 (taper £200,000/£240,000, £4,000 min) PIPs in line with tax-year
• Tax year 2019/20: £40,000 (taper £110,000/£150,000, £10,000 min) PIPs in line with tax-year
• Tax year 2018/19: £40,000 (taper £110,000/£150,000, £10,000 min) PIPs in line with tax-year
• Tax year 2017/18: £40,000 (taper £110,000/£150,000, £10,000 min) PIPs in line with tax-year
• Tax year 2016/17: £40,000 (taper £110,000/£150,000, £10,000 min) PIPs in line with tax-year
• Tax year 2015/16#2: £0, no taper, PIPs 9/7 to 5/4
• Tax year 2015/16#1: £80,000, no taper, PIPs dates vary to 8/7
• Tax year 2014/15: £40,000, no taper, PIPs dates vary
• Tax year 2013/14: £50,000, no taper, PIPs dates vary
• Tax year 2012/13: £50,000, no taper, PIPs dates vary
• Tax year 2011/12: £50,000, no taper, PIPs dates vary
• Previous rules: up to £255,000, PIPs dates vary

PIPs: Pension Input Periods

Caveat: The above is to be treated as a summary due to the complex nature of advice, definitions of income, threshold income, adjusted income etc. and the difficulty in interpreting pension statements we strongly recommend you seek advice