The Annual Allowance (AA) is a limit on the amount of pension savings you can make into your scheme(s) (you may have more than one) in any given tax year. If you exceed your AA, you may be charged tax on the excess.
The AA is currently £60,000, although a lower allowance applies to high earners. If your taxable income is more than £200,000, you should learn more about the tapered Annual Allowance as it may affect you.
You can carry forward any unused Annual Allowance from the past three years.
A lower allowance of £10,000 may apply to any future pension savings you make to Defined Contribution pension arrangements if you’ve taken money out of your pension pot. This is known as the ‘Money Purchase Annual Allowance’.
The Lifetime Allowance (LTA) is the maximum amount you can save into all your pensions throughout your working life before you have to pay tax. The LTA for the tax year 6 April 2023 to 5 April 2024 is £1,073,100.
You would have to pay tax on any pension savings you have that are over the LTA limit. The amount of tax you owe will depend on your income tax rate, rather than the LTA charge that was in place before 5 April 2023.
You should be aware that from 6 April 2024, there is a limit of £268,275 on the amount you can take as a lump sum when you take your pension. This limit won’t affect you if you have Lifetime Allowance protections.
You can read more about the AA and LTA at www.gov.uk/tax-on-your-private-pension.
You are responsible for monitoring your AA and LTA and reporting any excess to Her Majesty’s Revenue & Customs (HMRC).