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What is the annual allowance?

The annual allowance is a limit on the amount that can be contributed to the retirement pot of your defined contribution scheme each year, while still receiving tax relief. The annual allowance limit for the tax year 2021/22 is £40,000.

The annual allowance will apply to your Nest retirement pot. It’s not as per scheme limit so it also applies across all the defined contribution schemes with whom you have a retirement pot.

It includes the contributions that you, your employer or third party pays on your behalf in all your retirement pots with different retirement schemes.

If you exceed the annual allowance in a year, you won’t receive tax relief on contributions paid over the limit and you’d need to pay an annual allowance charge. The annual allowance charge will be added to the rest of your taxable income for the tax year in question, when your tax liability is determined.

You can carry forward any remaining allowance from the previous three tax years to the current tax year.

If you get close to your annual allowance or exceed it, you may wish to consider taking advice from an independent financial advisor.

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