Every year, you receive an allowance for making contributions into a Self-Invested Personal Pension. The Government sets this limit because your pension contributions are topped up with tax relief.
You can either pay lump sums into your SIPP, or you can make regular contributions – whichever suits you best. Your employer or anyone else can also make contributions into your SIPP on your behalf.
There’s a limit on the amount of contributions you can make each year which attract tax relief. For most people, this is currently £40,000 per tax year, or 100% of your earnings – whichever is the lower. If you have enough income in the current year, you can increase contributions by any unused allowances for any of the last three tax years, provided that you belonged to a pension scheme at that time.
The usual £40,000 annual allowance is cut for people with annual earnings of more than £150,000. The allowance reduces by £1 for every £2 earned above £150,000, down to a minimum of £10,000 for those earning more than £210,000.
Non-taxpayers and children can currently also make pension contributions of up to £2,880 a year (making £3,600 with basic-rate tax relief).
Your annual allowance will be reduced if:
• You have drawn a taxable sum from a personal pension (in which case, the amount that you can pay into pensions and receive tax relief reduces to £4,000 per tax year), or 100% of your income – whichever is lower
• If you earn over £110,000 and your income and pension contributions made on your behalf exceeds £150,000, your annual allowance will be tapered
