Examples of Annual Allowance calculations
Printer-friendly versionExample 1: Robert
This example shows Robert’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.
Gross Annual Salary in 2020/2021 = £220,000
Less Employee Pension Contributions = £27,500 (12.5%)
Threshold Income 2020/21 = £192,500
Plus pension savings in the year = £42,449
Adjusted income 2019/20 = £187,620
Robert’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.
Robert's Tapered annual allowance position
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
Example 2: Susan
Susan is a higher earner who exceeds the standard annual allowance in the 2020/21 year.
Gross Annual Salary in 2020/2021 = £130,000
Less Employee Pension Contributions = £14,800 (11.4%)
Plus taxable income from property = £30,000
Threshold Income 2020/21 = £145,800
Susan’s Threshold income is less than £200,000. Her annual allowance will not be tapered in 2020/21. Susan’s pension savings will be measured against the standard annual allowance of £40,000.
Susan's annual allowance position
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 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.