Could your clients fall into the taper trap?

27 August 2018



Jim Grant looks at how the tapered annual allowance could affect your clients with higher incomes.

Individuals with adjusted income over £150,000 in the tax year could have their annual allowance reduced.

Employer pension contributions are included in the definition of adjusted income so for those affected by taper, it can become very difficult to calculate the maximum employer contribution that can be paid as the contribution paid affects the adjusted income. As a result, whatever maximum contribution is paid reduces the tapered annual allowance which reduces the maximum contribution that can be paid!

Here’s an example:

Ryan has earnings of £134,000 in 2018/19.  His employer’s normal pension contributions will amount to £15,000 so his adjusted income is £149,000. As this isn’t more than £150,000 he isn’t affected by the taper.  His employer wants to pay an additional single pension contribution of £20,000 in 2018/19.  His total contributions are within the standard annual allowance of £40,000 (he doesn’t have any carry forward to add to this) but the additional contribution increases Ryan’s adjusted income to £169,000.  

As this is £19,000 over the limit, his annual allowance is reduced by £9,500 to £31,500.  So if the employer pays the additional contributions of £20,000, Ryan will have to pay an annual allowance charge on £4,500 as total pension contributions in the tax year will amount to £35,000.  

taxable income*for a DB scheme, this would be the pension input amount minus any employee contributions.

So how much can the employer pay without creating an excess over the reduced annual allowance?

The answer is £17,000.  An employer contribution of £17,000 makes the adjusted income £166,000, £16,000 over the limit.  The annual allowance is therefore reduced by £8,000 to £32,000, allowing the contribution to be paid without creating an annual allowance charge.

If any of your clients are faced with this dilemma, speak to your usual Royal London contact. 

About the author

Jim Grant

Senior Technical Support Analyst

Jim has worked in Financial Services since 1969 with experience in training, sales training, consultancy work and technical support.

This website is intended for financial advisers only and shouldn't be relied upon by any other person. If you are not an adviser please visit

The Royal London Mutual Insurance Society Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. The firm is on the Financial Services Register, registration number 117672. It provides life assurance and pensions. Registered in England and Wales number 99064. Registered office: 55 Gracechurch Street, London, EC3V 0RL.