Whilst there are no limits on the amount that an individual can save into a registered pension scheme each year, there is a limit on the amount of tax relieved pension savings that can be made each year. This is the annual allowance.
Where pension savings are made in excess of the annual allowance plus any carry forward of unused annual allowance from the previous three years available to the individual, a tax charge is applied to the excess to recover the tax relief given on the excess savings.
The Annual Allowance is currently £40,000 and will remain at that figure for 2016/2017.
On 8 July 2015, the Chancellor announced that the government would be restricting tax relief for those whose income exceeded £150,000 by gradually tapering the Annual Allowance down to a minimum of £10,000.
The tapering will work in exactly the same way as for the tapering down of the Income Tax personal allowance. For every £2 of adjusted net income above £150,000 the Annual Allowance will be reduced by £1 down to a minimum Annual Allowance of £10,000.
The Government are focussing on high earners and so the regulations will not impact on any tax payer whose income after deducting pension contributions is below £110,000
The draft regulations also introduce requirements for the pension scheme administrator to provide information to the scheme member where the member’s pensionable earnings exceed £110,000 in the tax year, so the member has the information they need to determine whether or not they may be subject to a tapered annual allowance for 2016-17 onwards
Draft Regulations designed to bring this into effect have been laid and can be found here.