The maximum amount a person's pension benefits can build up annually without incurring a tax charge. This has reduced significantly from £255,000 when introduced in 2006/07 to £40,000 for the 2014/15 tax year.
A tax charge levied on an individual who exceeds the annual allowance; it is charged on the amount by which the total pension input amount exceeds the amount of the annual allowance. The annual allowance is designed to recoup the full marginal rate relief the individual has received (i.e. basic, higher or additional rate relief).
Where the value of a member's pension accrual in any year exceeds the annual allowance, any unused annual allowance from the three previous tax years may be carried forward to be offset against the excess pension accrual. The annual charge will apply to any pension accrual which still exceeds the annual allowance after carry forward has occurred.
Is the value of your benefits at the end of the pension input period. The closing value can be subject to adjustments for example, where benefits are transferred in or out or there is a pension credit or pension debit.
Is an indicator of price inflation used to assess the indexation of pensions. CPI replaced the retail price index (RPI) from April 2011.
Is the amount by which the total pension input amount exceeds the amount of the annual allowance.
Is the value of your benefits at start of the pension input period including any inflationary increase (CPI) applied.
Is the growth in your pension and is calculated by determining the difference between the opening and closing values; if you contributed to any other registered pension scheme you will need to work out your total pension input amount before determining whether or not you have exceeded the Annual Allowance limit.
Is the period over which growth in a members pension saving is assessed; the PIP for the PPS is 1 April to 31 March.
Providing certain conditions are met, an individual can make an election requiring the pension scheme administrator to pay some or all of their annual allowance charge liability relating to that scheme out of their pension savings in that scheme. In return there will be an appropriate reduction to their pension benefits.
Is a pension scheme registered with HMRC to receive favourable tax treatment.
Is the aggregate value of the pension amounts in respect of each arrangement relating to an individual under any registered pension scheme.