Part 4: Income tax, corporation tax and capital gains tax Section 23 and Schedule 4: Pensions: annual allowance Background note
The pensions tax rules are set out in FA 2004 which came into force on 6 April 2006.
	Under FA 2004, there are no limits on the amount that an individual can save into a registered pension scheme each year, but there is a limit on the amount of tax relieved pension savings that can be made each year. This is the annual allowance. Where pension savings are made in excess of the annual allowance plus any carry forward available to the individual, a tax charge is applied to the excess to recover the tax relief previously given on the excess savings.
	In order to restrict the cost of pensions tax relief the annual allowance has been reduced from £255,000 in 2010-11 to its current level of £40,000. The government announced at the 8 July 2015 Budget that the annual allowance would be reduced from 6 April 2016 by the means of a tapered annual allowance for those with incomes of over £150,000, including the value of any employer contributions. Individuals subject to the tapered annual allowance will continue to be able to carry forward any unused annual allowance from the three previous tax years.
	Pension savings are measured over pension input periods. These must end in consecutive tax years but they don’t have to be aligned with the tax year or run for a period of 12 months. An individual's pension savings for a tax year are the total amount of pension savings for each arrangement that they are a member of, for the pension input period ending in the tax year. In order to help individuals work out the value of their pension savings for a year, the government has also announced that pension input periods will be aligned with the tax year from April 2016.
	By aligning pension input periods with the tax year, this will make it easier for individuals to work out whether their pension savings have exceeded the annual allowance.