Limits on contributions
Given the attractive tax incentives attached to pension savings, HMRC have placed restrictions on how much can be contributed in each tax year. The limit is currently £40,000 gross, or 100% of your income if you earn less than £40,000. This annual allowance is reduced when your total income is over a certain threshold.
Effective from 6 April 2020 (the 2020/21 tax year), there have been changes to the limits for the tapering of the pension annual allowance.
The threshold for pension tapering was previously £150,000. Therefore, if your income was above £150,000, your allowance was reduced by £1 for every £2 of income over the threshold. This threshold has now been increased to £240,000.
In addition, the annual allowance could previously be tapered down to a minimum allowance of £10,000 gross, but from 6 April 2020 the minimum annual allowance is now £4,000 gross.
The changes have been welcomed by some, and unfortunate for others.