ACCA Taxation (F6) Practice Exam

Do employer contributions count towards the annual allowance for pensions?

1. Yes, they do count

2. No, they do not count

3. Only for certain employees

4. Only if specified in the contract

The correct answer is: Yes, they do count

Employer contributions to pensions do indeed count towards the annual allowance. The annual allowance is the limit set on the total amount that can be contributed to pension schemes each tax year without incurring a tax charge. This includes contributions made by both the employee and the employer. Recognizing this is crucial as exceeding the annual allowance can lead to additional tax liabilities for individuals. Each individual has a personal annual allowance, and any contributions exceeding this allowance may lead to a tax charge at the individual's marginal tax rate, affecting overall retirement savings. In the context of the other options, it's important to note that while employee contributions are typically well understood to count against this allowance, the employer's contributions are equally significant and also contribute to the total. There are no stipulations that limit or exclude employer contributions based on employment status or contractual conditions unless specific circumstances apply, such as protection for certain high earners or if an individual's annual allowance is tapered based on their total earnings. Thus, employer contributions are an integral part of the pension contributions assessed against the annual allowance.