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Definitions
Annual Allowance
The Annual Allowance is the amount your pension contributions can increase in value each year without incurring a tax charge. The amount that will count towards the Annual Allowance will be calculated as the contributions you and the Company have made to your investment account.
The Annual Allowance was £255,000 for the 2010/11 tax year, but was reduced to £50,000 from April 2011. From April 2014 the Annual Allowance is £40,000.
AVCs and EDCs are also limited by the Annual Allowance. Any AVCs or EDCs paid above the Annual Allowance will incur a tax charge.