Annual allowance examples
Annual allowance example 1 – Sanjay
This example shows Sanjay’s annual allowance position for the 2019/2020 year. This example demonstrates the lower annual allowance tapering limits that were in force before the 2020/21 year.
| Sanjay’s financial information | Amount |
|---|---|
| Gross salary 2019/20 | £130,000 |
| Less employee pension contributions (11.4%) | £14,820 |
| Plus taxable income from property | £30,000 |
| Threshold income 2019/20 | £145,180 |
| Plus pension savings in the year | £42,449 |
| Adjusted income 2019/20 | £187,620 |
Sanjay’s Threshold income is more than £110,000 and his Adjusted income is more than £150,000. His annual allowance is tapered for the 2019/20 year
| Sanjay’s financial information | Amount |
|---|---|
| Tapered annual allowance | £21,186* |
| In excess of annual allowance | £21,263 (£42,449 – £21,186) |
| Annual allowance tax charge at marginal rate | £8,505.20 (40% rate assumed) |
* Taper = £187,629 – £150,000 = £37,629 ÷ 2 = £18,814 (rounded down)
Standard annual allowance £40,000 – £18,814 = tapered annual allowance £21,186
Annual allowance example 2 – Cerys
Cerys is a higher earner who exceeds the standard annual allowance in the 2020/21 year.
| Cerys’s financial information | Amount |
|---|---|
| Gross salary 2020/21 | £220,000 |
| Less employee pension contributions (12.5%) | £27,500 |
| Threshold income 2020/21 | £192,500 |
Cerys’s Threshold income is less than £200,000. Her annual allowance will not be tapered in 2020/21. Cerys’s pension savings will be measured against the standard annual allowance of £40,000.
| Cerys’s financial information | Amount |
|---|---|
| Pension savings in 2020/21 | £71,837 |
| Standard annual allowance | £40,000 |
| Pension savings in excess of annual allowance | £31,837 |
| Annual allowance tax charge at marginal rate | £14,327 (45% rate assumed) |
Annual allowance example 3 – Huang
In this example, Huang exceeds the increased tapered annual allowance limits that apply from the 2020/21 year.
| Huang’s financial information | Amount |
|---|---|
| Gross salary 2020/21 | £210,000 |
| Less employee pension contributions (12.5%) | £26,250 |
| Plus taxable income from property | £30,000 |
| Threshold income 2020/21 | £213,750 |
| Plus pension savings in the year | £68,571 |
| Adjusted income 2020/21 | £282,321 |
Huang’s Threshold income is more than £200,000 and her Adjusted income is more than £240,000. Her annual allowance will be tapered for the 2020/21 year.
| Huang’s financial information | Amount |
|---|---|
| Tapered annual allowance | £18,840* |
| In excess of annual allowance | £49,731 |
| AA tax charge at marginal rate | £22,379 (45% rate assumed) |
* Taper = £282,321 – £240,000 = £42,321 ÷ 2 = £21,160 (rounded down)
Standard annual allowance £40,000 – £21,160 = £18,840.
Annual allowance examples – assumptions
We have made no allowance for any carry forward in these examples. In working out the pension savings in the year we have assumed:
- inflation adjustment of zero
- the members have no final salary benefits in the LGPS, and
- the members are not paying any additional contributions.