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What is the annual allowance?

The annual allowance is the maximum amount that can be contributed to any pension scheme with the benefit of tax relief. Tax implications may apply if the allowance is exceeded. The annual allowance for the tax year 2024/2025 is £60,000. However, if you are a high earner with annual earnings above a certain amount, your annual allowance for that tax year may reduce on a tapered basis to a minimum of £10,000. This is known as the Tapered Annual Allowance. For more information, visit the MoneyHelper website.

The annual allowance will apply to your Nest retirement pot. It’s not a per scheme limit so it also applies across all your retirement pots with different pension schemes in which the contributions are paid by you, your employer or a third party on your behalf. It also includes any tax relief paid into the scheme.

If you exceed the annual allowance in a year, you may need to pay an annual allowance charge. The annual allowance charge will be added to the rest of your taxable income for the tax year in question, when your tax liability is determined. For more information visit HMRC’s website.

You may be able to carry forward any remaining allowance from the previous three tax years to the current tax year.

If you flexibly access your retirement pot from any pension scheme, you will have a reduced annual allowance of £10,000 per year towards your defined contribution pension schemes. This is known as the Money Purchase Annual Allowance. For more information, please see What is the money purchase annual allowance?

As the annual allowance you use in any year is calculated using details from all pension schemes you contribute to, we suggest you consider taking advice from an independent financial adviser. You can get help to find a financial adviser on MoneyHelper.

In addition to the annual allowance there are other limits that affect the amount you can pay into a pension and receive tax relief. This amount is linked to your earnings. For more information, visit the MoneyHelper website.

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