There is also an overall ceiling on the amount of tax privileged pension saving that can be made in a tax year, known as the annual allowance. The amount of pension saving tested against the annual allowance is calculated using pension input periods. Each pension arrangement has its own pension input period, which usually lasts for 12 months. The amount of pension saving tested against the annual allowance for a tax year will be the pension saving (or pension input) made during a pension input period that ends in that tax year.

The annual allowance for the tax year 2011/12 is £50,000, and will remain at this level until 2015/16. Thereafter it is expected to be index linked. Where the annual allowance is exceeded, an income tax known as the annual allowance charge is applied to the excess.

The links below will lead you to detailed information on how key elements work and impact on clients’ future pension savings. Alternatively, please view our pension rules videos.