Home >

Tapered annual allowance

pensions & retirement

Tapered annual allowance explained

If you are a high earner, the amount you can contribute into a pension and receive tax benefits may be reduced.

What is the tapered annual allowance?

The tapered annual allowance is a reduction in the amount you can contribute each year to your pension and still receive tax relief

The tapered annual allowance may apply to anyone with a threshold income over £200,000, or an adjusted income over £240,000, for the tax year. 

How it works

Your annual allowance will reduce by £1 for every £2 that your adjusted income exceeds £240,000. The maximum reduction is by £36,000. This reduces your annual allowance to £4,000 if you earn £312,000 or more. 

The table below details how the annual allowance is tapered based on the standard annual allowance of £40,000 for the 2020-21 tax year. 

Annual Income Annual Contribution Allowance
Up to £240,000 £40,000
£250,000 £35,000
£260,000 £30,000
£270,000 £25,000
£280,000 £20,000
£290,000 £15,000
£300,000 £10,000
£310,000 £5,000
£312,000 £4,000


Will I be affected by the tapered annual allowance?

You will only be affected by the tapered annual allowance if you are are a high earner. 

It may apply to you if you have a threshold income of more than £200,000 for the tax year, or an adjusted income over £240,000.

What is threshold income?

Threshold income is essentially your net income minus any pension contributions that received tax relief. For a full explanation, see the Government’s guidance on calculating threshold income.

If your threshold income is less than £200,000, you will not be subjected to a tapered annual allowance. If it is over £200,000, you will need to check your adjusted income to see if you will be affected. 

What is adjusted income?

Your adjusted income is essentially your net income plus any personal and employer pension contributions. For a full explanation, see the Government’s guidance on calculating adjusted income.

If your adjusted income exceeds £240,000, you will be subject to a tapered annual allowance. 

How to work out my tapered annual allowance?

You can check the government guidelines if you wish to work out your tapered annual allowance.

What happens if I am already subject to the money purchase annual allowance (MPAA)?

If you are already subject to the money purchase annual allowance (MPAA), the tapered annual allowance will not affect you. Your annual allowance will already be reduced to £4,000.

Tapered annual allowance FAQs

You can still carry forward unused annual allowance if you have a tapered annual allowance.

For example: if your adjusted income is £250,000, your annual allowance is reduced to £35,000. If you contribute less than £35,000 in the tax year, the remaining amount could potentially be carried forward to another year. 

The tapered annual allowance was introduced by the government in order to control the cost of pension tax relief. 

If you exceed your annual allowance, you will not receive tax relief on the excess contribution and may face an annual allowance charge.  This will be levied by HMRC and will be calculated based on the information you submit when completing your self-assessment tax return.

Get more from an ii SIPP

We don’t believe in charging a percentage fee that goes up as your investments grow.

Our award winning SIPP gives you fixed, transparent pricing, with no percentage-based fees. So you can watch your portfolio grow whilst your costs stay the same.

Open a SIPP and pay no SIPP fee for six months. Following the offer period, the ii SIPP fee is only £10 a month. Terms apply

The ii SIPP is aimed at clients who have sufficient knowledge and experience of investing to make their own investment decisions and want to actively manage their investments. A SIPP is not suitable for every investor. Other types of pensions may be more appropriate. The value of investments made within a SIPP can fall as well as rise and you may end up with a fund at retirement that’s worth less than you invested. You can normally only access the money from age 55 (age 57 from 2028). Prior to making any decision about the suitability of a SIPP, or transferring any existing pension plan(s) into a SIPP we recommend that you seek the advice of a suitably qualified financial adviser. Please note the tax treatment of these products depends on the individual circumstances of each customer and may be subject to change in future.