The annual allowance for tax relief on pensions has been fixed at £40,000 since 6 April 2014. The annual allowance is further reduced for high earners. Since 6 April 2020, the tapered annual allowance increased from £150,000 to £240,000.
This means that anyone with income below £240,000 is no longer affected by the tapered annual allowance rules. Those earning over £240,000 will begin to see their £40,000 annual allowance tapered. For every complete £2 income exceeds £240,000 the annual allowance is reduced by £1. The annual allowance can also be lower if the taxpayer flexibly accessed their pension pot.
There is a three year carry forward rule that allows taxpayers to carry forward unused annual allowance from the last three tax years if they have made pension savings in those years. The calculation of the exact amount of unused annual allowance that can be carried forward can be complicated especially if you are subject to the tapered annual allowance.
There is also a pensions lifetime allowance that needs to be considered. The lifetime allowance limit is currently £1,073,100.
or most workplace and personal pensions, how much you get depends on:
the amount you’ve paid in
how well the pension fund’s investments have done
your age – and sometimes your health – when you start taking your pension pot