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  • Is employed on a salary of £80,000
  • Is a member of her employer’s Group Personal Pension (GPP) scheme
  • Contributions are paid using a salary sacrifice arrangement (set up after 9 July 2016)
In 2016/17
  • Caroline sacrifices £10,000 into her GPP (pre-sacrificed salary is £90,000)
  • Her employer makes an additional contribution of £5,000
  • She also receives £1,000 gross savings interest and £2,000 gross dividend income
  • She receives her late father’s pension plan (who passed away at age 81) as a lump sum death benefit which she paid tax on at her highest marginal rate.
Therefore, Caroline’s threshold income will be £93,000:
  • (Gross income from all sources) + (any pre-sacrificed salary)
  • (£80,000 + £1,000 + £2,000) + (£10,000) = £93,000
  • Caroline’s threshold income is below £110,000
  • Therefore no adjusted income calculation is required
If Caroline’s threshold income had been £110,000 or over, then she would have been subject to the adjusted net income test and her employer’s pension contribution would have been factored into the calculation.
  • Is employed on a salary of £140,000
  • Is a member of his employer’s occupational money purchase scheme
  • Contributions are paid using the net pay arrangement
In 2016/17:
  • He contributes £20,000 to his pension scheme
  • His employer matches his contribution of £20,000
  • He also receives £2,000 gross savings interest and £10,000 gross dividend income
Therefore, Nathan’s adjusted income will be £192,000:
  • (Gross income from all sources) + (employers’ + employees’ pension contributions)
  • (£140,000 + £2,000 + £10,000) + (£20,000 + £20,000) = £192,000
Nathan’s annual allowance will be reduced by £21,000:
  • (£192,000 - £150,000) / £2 = £21,000
Therefore Nathan will have an annual allowance of £19,000:
  • (£40,000 less £21,000) = £19,000
Where an individual is subject to both the tapered annual allowance and the money purchase annual allowance, their allowance can be determined as follows:
  • The tapered annual allowance will be their actual annual allowance, although the MPAA will still apply to the level of contributions that can be made to a defined contribution scheme.
  • To determine how much applies to the MPAA and how much to the alternative annual allowance
  • First minus the MPAA from the available tapered annual allowance
  • Whatever remains is the available alternative annual allowance, if nothing remains then the alternative annual allowance is nil
For example, if an individual’s tapered annual allowance is £15,000, you would minus the MPAA of £10,000 from £15,000, leaving £5,000 available as the alternative annual allowance.
Individuals will still be able to carry forward unused allowance from the previous three tax years providing:
  • They have unused annual allowance available for those tax years
  • They were a member of a pension scheme over those tax years
  • If they are making the contribution, they have relevant UK earnings in this tax year to cover the size of any contribution being proposed.
Individuals affected by the tapered annual allowance can still elect for their schemes to pay any annual allowance charge providing that:
  • The charge exceeds £2,000
  • The total pension savings within that scheme exceed the annual allowance (e.g. £40,000).
So for the scheme to pay the charge, in addition to the charge exceeding £2,000, the member will have to have exceeded the annual allowance limit and not the tapered annual allowance limit that may apply to them.

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