Lifetime Annual Allowance (LTA)
The LTA is the maximum amount of pension savings you can build up during your lifetime from all pension arrangements added together (excluding the State Pension) before you pay extra tax.
The LTA currently increases every tax year in line with inflation and the latest increase, from £1,055,000 to £1,073,100, reflects the level of Consumer Prices Index (CPI) inflation in September 2019.
Tapered Annual Allowance (TAA)
The Annual Allowance is the amount of tax-free pension savings you can make each tax year. Extra tax is charged on any savings once the Annual Allowance is exceeded. For most people, the Annual Allowance limit will be £40,000. However, for high
earners, it may be less. This is known as the Tapered Annual Allowance.
From Monday 6 April, the income threshold increased to £200,000, an increase of £90,000 from its previous amount.
This means that only those who have an ‘adjusted income’ above £240,000 may now be affected by the Tapered Annual Allowance (‘adjusted income’ is your income threshold plus your annual pension savings).
If this affects you, your Annual Allowance limit will reduce by £1 for every £2 you earn above £240,000.
Even though the thresholds have increased, the minimum level of Annual Allowance applying under the taper system has now reduced from £10,000 to £4,000. This means that some high earners will have a lower available Annual Allowance than they
You can learn more about the Lifetime Allowance, Annual Allowance, Tapered Annual Allowance, and Money Purchase Annual Allowance in our glossary and FAQs.
Further information is also available at https://www.gov.uk/tax-on-your-private-pension.
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