• The annual allowance for the 2011/12 tax year is £50,000.
• The annual allowance will remain at £50,000 for subsequent tax years although indexation may apply from 2016/17 tax year.
• The amount of pension savings tested against the annual allowance for a tax year is that made during the pension input period ending in that tax year.
• Pension savings include those made by members and any made on their behalf by employers or third parties.
• If pension savings exceed the annual allowance then a tax charge (annual allowance charge) will apply to the amount over the annual allowance.
• It is possible to carry forward unused annual allowance.

• From 2011/12 tax year onwards an individual will not be liable for an annual allowance charge where in the tax year the individual:
  – dies
  – retires on the grounds of serious ill-health, or
  – are a deferred member of that arrangement (provided the benefits do not increase more than CPI or an annual percentage rate in force in the scheme rules on 14 October 2010).
• There are transitional annual allowance rules where a pension input period commenced before the 14 October 2010 and ends in the 2011/12 tax year.
• If an individual has previously entered into flexible drawdown and starts to build up benefits in a defined benefits arrangement or makes a pension contribution, they will be subject to an annual allowance charge on this pension saving.

Example

Alex is a member of a defined benefit arrangement and a personal pension. Her earnings are £110,000. The defined benefit arrangement has a pension input period (PIP) ending on 31 March and the personal pension has a PIP ending on 30 November. Her pension savings for the 2011/12 tax year are £20,000 for the defined benefit arrangement for the pension input period ending

31 March 2012, and £25,000 for the personal pension arrangement for the pension input period ending 30 November 2011, giving her total pension savings for the 2011/12 tax year of £45,000.

As this amount is within the 2011/12 annual allowance of £50,000, she will not be subject to annual allowance charge and will obtain tax relief on all her pension savings.