You may remember that the pension annual allowance was initially set at £215,000 when it was introduced as part of ‘A-Day’ in April 2006. It was also due to increase each year. In fact, in those days, pension input periods were not necessarily aligned to tax years and so it was possible, in some cases, to use this allowance twice in the same tax year. Those were the days! Anti-forestalling rules, introduced in 2009, quickly brought that party into check.

Today, allowances are far more modest. The standard annual allowance is set at £40,000 while pension input periods are aligned to the tax years. The planning considerations relating to pension contributions therefore seem quite straightforward. However, we’ve seen the introduction of additional legislation that has complicated the picture. So, for some clients, we need to consider:

  • the carry forward of unused allowances from previous years – introduced in 2011/12
  • the money purchase annual allowance (MPAA) – introduced in 2015/16 
  • the tapered annual allowance (TPAA) – introduced in 2016/17.

Add in the changes to the limits for MPAA (2018/19) and TPAA (2020/21) and there can be quite a bit to unpick when assessing what contributions could or should be made for a client.

Given all of the above, it’s often best to have a plan or checklist when attempting to calculate what pension savings to make for the tax year. You could create your own or use our checklist as a framework, but some of the main considerations are as follows.

Tax relief

While there’s no limit on the amount of personal pension savings an individual can make each tax year, there is a limit on the savings that will receive tax relief. For those under the age of 75, this will be either their “relevant earnings” (section 189(2)-(7) Finance Act 2004) or £3,600, whichever is higher. “Relevant earnings” includes certain taxable income, such as salary, bonus, etc., but also excludes certain taxable income, such as dividends and interest. It’s always best to check the legislation if you’re unsure.

It’s worth noting that employer contributions are not directly related to relevant earnings and are paid gross. The pension contributions will be a deductible expense for the employer, provided they meet the “wholly and exclusively” rules.

Annual allowance

The annual allowance limit applies to all pension savings, including those made by the person themselves, their employer or anyone else on their behalf. The annual allowance is not a restriction on the amount of tax relief given – it works by applying a tax charge when the allowance is exceeded.

The standard annual allowance for most individuals is currently £40,000. However, for higher earners affected by the tapered annual allowance, this could be as low as £4,000. As such, it’s important to establish what annual allowance a client has available. This can involve collating details on taxable income from all sources as well as pension contributions and whether these have been made by the employer or the individual themselves. Fortunately, help is at hand. We have guides to assist with the calculations (including the previously mentioned pension contribution checklist) as well as client pension contribution reports to elucidate some of the required information.

Carry forward

If the total value of someone’s pension contributions exceeds their allowance for the current tax year, then it may be possible to avoid a tax charge where there are sufficient unused allowances from the previous three tax years. The individual will need to have been a member of a registered pension scheme – not necessarily the same scheme they are contributing to – in the tax years where they wish to utilise unused relief. Further calculations are required to establish the annual allowance (and whether it was tapered) and what contributions have been made for those years. But don’t forget that the tapering limits were different before the 2020/21 tax year! Again, help is at hand as we have client reports and guides that can assist you.

Money purchase annual allowance (MPAA)

Where contributions are being paid to a defined contribution scheme, such as our Pension, it’s advisable to check whether a client has triggered the MPAA. If they have, then the maximum amount that can be paid into these schemes is £4,000 per tax year. No carry forward is available. Again, we have guides and reports to explain this in more detail.

Annual allowance tax charge

Finally, it’s not always possible – or even desirable – to avoid exceeding the annual allowance (including any carry forward). Where this does happen, a tax charge will become payable. The client can always pay the charge themselves through their self-assessment return. However, in certain circumstances, it may be possible for the scheme to pay the tax charge from the pension savings. Some schemes – such as ours – may even facilitate payment for tax charges that have occurred through other arrangements. The rules here can be quite complex and there may be different reporting and payment dates depending on how the payment is to be made. Where a tax charge is payable, it is advisable to investigate the options for payment as soon as possible following the end of the tax year.


Saving through a pension clearly comes with some potentially very valuable tax reliefs and allowances. However, the required calculations and considerations can sometimes be very complex. By establishing a checklist, these requirements can be broken down so that the process is more manageable. This can help to ensure that all the necessary steps have been followed.

And, don’t forget, our Technical matters hub contains a whole host of information on pension considerations. Alternatively, simply contact your Fidelity representative for more information.

Pensions ‘in-depth’: tax relief and annual allowances

Here we've gathered information around the law and mechanisms underpinning tax relief on pension contributions and matters relating to annual allowances, tapered annual allowance and the annual allowance tax charge.

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