Tapered Annual Allowance Pension Calculator for High Earners - Use the calculator to calculate the tapered pension annual allownce for individuals earning over £260,000 per annum.
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The purpose of this calculator is work out whether your annual allowance for pension contributions will be restricted due to the changes that came into effect on 06/04/2016.
From 6 April 2016, individuals with income above £260,000 will face additional restrictions on the amount that they are able to contribute to pension schemes. This is known as 'tapering'; for every £2 of income above £260,000 the annual allowance will reduce by £1.
The current annual allowance (the maximum amount that you can contribute to pension schemes in any tax year) is £60,000. For those few affected by the tapered annual allowance, the maximum reduction is £30,000, so the minimum annual allowance is £30,000.
Although these measures are likely to affect relatively few people, the rules are complicated, and revolve around the definitions of how "income" is defined.
For the purposes of calculating income for tapering purpose, firstly you need to work out your "net income", then work out your "adjusted income". Adjusted Income takes into account not only your basic earning, but also employer pension contributions, employee pension contributions made under net-pay pension schemes, and any higher-rate or additional-rate tax-relief reclaimed from Personal Pension contributions.
There is one exception. Where an individual's net income is no more than £110,000, the taper will not apply.
Net Income is defined as income minus pension contributions (although this will not apply to those who entered a new salary sacrifice arrangement after June 2015).
Adjusted Income takes into account pension contributions. Therefore, an individual who earns 240,000 a year and receives a pension contribution of £20,000 will not be affected by these rules. However, if the same individual receives a pension contribution of £40,000, their adjusted income is now £160,000. This would result is a reduced annual allowance of £35,000 – a reduction of £5,000.
Carry Forward
Carry Forward will work in the usual way. Unused allowances from the previous three tax years can still be carried forward as previously. However, if a tapered annual allowance is applied after 2016, then that will apply to carry forward. For instance, if a £20,000 tapered allowance is applied and a £10,000 pension contribution is made, then £10,000 can be carried forward to future years.
Money Purchase Annual Allowance
If somebody has flexibly accessed pension benefits, they become subject to the Money Purchase Annual Allowance, which is currently £10,000. In this scenario, the taper is applied to the 'Alternative Annual Allowance', which is the standard annual allowance, minus the MPAA. However, this is only allowed to be used to accrue benefits within final salary pension schemes.
In a scenario in which an individual is subject to maximum taper rules, the effect will be to reduce their alternative annual allowance to zero. However, the Money Purchase Annual Allowance can still be used in conjunction with carry forward to accrue further benefits under a final salary pension scheme.
The figures projected by this calculator are only for guidance purposes - whilst we aim to ensure the accuracy of our calculators, we can take no responsibility for the usage made of the calculations generated on this site.
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