Tax Relief

The Annual Allowance

Pension savings are subject to tax relief up to certain annual limits. You are responsible each year for assessing whether or not you have exceeded these annual limits.

The Annual Allowance is the maximum amount of pension savings you can make each year that benefits from tax relief. It includes pension savings you make plus any pension contributions paid on your behalf (by your employer).

There are different types of Annual Allowance which you should be aware of. This article explains how these allowances might affect you.

If you are unsure about any of this information, you may wish to contact an independent financial adviser. You can search for an IFA in your area at

Standard Annual Allowance

For most people, the Standard Annual Allowance is £40,000 per year, although different rules apply for those with an ‘adjusted income’ income of over £150,000. If this affects you, you should read the ‘Reduced Annual Allowance’ section below.

If your pension savings in this Scheme, plus any other pension arrangements you contribute to outside of National Grid, exceed the Annual Allowance, you may have to pay an additional tax charge.

However if you have sufficient unused Annual Allowance from the previous three tax years, you may be exempt from paying additional tax.

Pension Input Period

For the purposes of assessing whether an individual’s pension savings are within the Annual Allowance, reference is made to their ‘Pension Input Period’.

This is the period over which the amount of pension saving, under an arrangement, is measured in any given tax year.

For the Scheme, the Pension Input Period runs from 6 April to 5 April each year.

You may be able to carry forward any unused Annual Allowance from the three previous Pension Input Periods and offset this against the excess over your Annual Allowance for the current Pension Input Period.

If you have paid contributions to any other pension arrangements in any of the previous three tax years, the savings in all your pension arrangements must also be taken into account.

Carry Forward

If have not used all your Annual Allowance in one or more of the last three tax years, the unused amount is added to the Annual Allowance available for the current tax year. This is known as 'carry forward'.

It means that if you make pension savings above your Annual Allowance in one year, and you have sufficient unused Annual Allowance from the previous three tax years, you may not have to pay a tax charge.

Please contact UK Pensions Operations if you need more information.

How will I know if I have exceeded the Annual Allowance?

If you exceed your Annual Allowance within the Scheme during any Pension Input Period, UK Pensions Operations will send you a Pension Savings Statement by no later than 6 October (following the end of the Pension Input Period).

Pension Savings Statements

Pension Savings Statements are issued to members when their pension savings in the Scheme for the previous PIP has exceeded the standard Annual Allowance. The Trustees are required to send these Statements to members who are affected. These are issued to members by 6 October each year for the year ending the previous April.

You may need to declare to HMRC if your pension savings have exceeded your Annual Allowance, and pay any additional tax due. Information contained in the Pension Savings Statement will help you to decide if you need to do this.

For more information on the Annual Allowance, click here to access HMRC's pension scheme Annual Allowance checking tool.

Reduced Annual Allowance

 The Annual Allowance is reduced for some people with high incomes. You are affected if your Threshold Income is more than £110,000 and your Adjusted Income is more than £150,000.

If you exceed both the Threshold and Adjusted Income levels, your Annual Allowance will be reduced by £1.00 for every £2.00 of income above £150,000.

 If your Adjusted Income is £210,000 or more, you will be subject to the minimum Annual Allowance of £10,000. 

It is not possible for the Scheme to determine if you will be affected by the Reduced Annual Allowance because both Threshold Income and Adjusted Income include income generated outside of employment.

As such UK Pensions Operations, who calculate and administer your Scheme pension, will not have full details of any other taxable income you may receive.

You may not know yourself if you have exceeded the Annual Allowance until after the end of the tax year.

Money Purchase Annual Allowance (MPAA)

If you have flexibly accessed your benefits from a Defined Contribution (DC) pension arrangement after 6 April 2015, the Money Purchase Annual Allowance may apply to you. This is the maximum amount that you can contribute to DC arrangements before having to pay tax, and includes Scheme MPAVCs. The current Money Purchase Annual Allowance is £4,000.

If the Money Purchase Annual Allowance applies to you, and your total contributions into the Scheme (and any other DC arrangement that you contribute to) exceed the MPAA, there will be a tax charge on the excess.

Transitional changes for the 2015-16 tax year

Up until the 2016-17 tax year, the Pension Input Period was set by the Trustees and could run from any point in the year.

For the Scheme, this period was: 1 April to 31 March, but from 2016-17 it changed to 6 April to 5 April each year.

As the rules changed during the 2015-16 Scheme year, transitional rules affected the ‘carry forward’.

If you think this might affect you, please contact UK Pensions Operations for more information.

Lifetime Allowance 

The Lifetime Allowance is the maximum amount of pension savings you can build up over your lifetime without incurring an additional tax charge.

This applies to all pension schemes you are a member of but doesn’t include the State Pension.

Since 6 April 2016, the Lifetime Allowance has been set at £1m. However, in the November 2017 Budget, the Government confirmed that the Lifetime Allowance will rise in line with inflation and increase to £1,030,000.

If you exceed this limit at the point when your pension benefits are drawn, you will be subject to additional tax charges.

The limit will apply unless you have registered for protection with HMRC, in which case individual limits apply.