The tapered AA
The tapered AA affects individuals with an ‘adjusted income’ of over £260,000 a year from April 2023 but only if their ‘threshold income’ exceeds £200,000. Threshold income is all income subject to income tax, including:
| Employer | Basic Salary | e.g. £230,000 |
| Bonus and commission | ||
| P11d | ||
| Personal | Savings interest | |
| Investment income | ||
| Rental income | ||
| Pension/taxable lump sums | ||
| Other employments | ||
| Less deductions | Employee pension contributions not made via SmartPension | e.g. £10,000 |
| Payroll charitable giving | ||
| Plus (i.e. add these back in) certain contributions paid via salary sacrifice | You should contact BA for clarification as to what pension contributions should be added back in. | e.g. £28,000 |
| THRESHOLD INCOME | e.g. £248,000 |
If an individual's threshold income is less than £200,000, they will not be affected by the tapered AA and the standard AA will apply. However, if an individual’s threshold income exceeds £200,000 then an ‘adjusted income’ would need to be calculated. In the latter case, an individual’s AA will be reduced by £1 for every £2 by which their 'adjusted income' exceeds £260,000 with a maximum reduction of £50,000 - so the lowest AA could be £10,000 applicable to individuals with an ‘adjusted income’ of £360,000 or more.
The 'adjusted income' is calculated by adding an individual’s AA pension input amount (PIA), excluding AVCs, to their threshold income.
| EXAMPLE (using details above) | ||
| Pension as at 6 April 2020 is: | £30,000 | |
| Pension at 5 April 2021 is: | £36,000 | |
| Appropriate percentage is: | 1.1% (hypothetical CPI increase) | |
| Own savings made to BAPP over the year | £28,000 | |
| Calculation | ||
| PIA end amount: £36,000 x 16 | = | £576,000 |
| PIA start amount: £30,000 x 16 x 1.011 | = | £485,280 |
| Value of employer’s BAPP pension contributions | £74,720 | |
| Member’s income net of Scheme contributions: | £220,000 | |
| Plus value of employer’s pension contribution: | £74,720 | |
| Adjusted income: | £294,720 | |
| The AA reduction is therefore: £294,720 - £260,000 = £34,720 ÷ 2 | = |
£17,360
|
| The individual's AA for 2020/21 is therefore: £60,000 - £17,360 | = | £42,640 |
| AA CALCULATION | ||
| PIA end amount: £36,000 x 16 | = | £576,000 |
| PIA start amount: £30,000 x 16 x 1.011 | = | £485,280 |
| Increase in pension value over the year | £90,720 | |
| Plus BAPP contributions | £28,000 | |
| Total pension input for year | £118,720 | |
| Available AA | £42,640 | |
|
Amount subject to AA charge
|
£76,080 | |
It is the member’s responsibility to assess whether they are affected by the tapered AA and to calculate the amount of their reduced AA. The Trustee will continue to provide AA statements for members whose pension input amount exceeds the standard £60,000 AA
You should seek independent financial advice if you think you are affected by the AA.
The MPAA is explained on the "Money Purchase Annual Allowance MPAA limit" page.
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