By law, there is a maximum total amount that can be paid in to all pension plans, held in your name, each tax year that will be eligible for tax relief. This maximum is called the Annual Allowance and is £40,000 from the 2018/19 tax year onwards. This amount includes contributions made by you and by anyone else into your plan, for example, your employer. If total contributions exceed this limit in any year, then a tax charge will be payable on the excess, at your marginal rate.
It may also be possible for you to carry forward any unused Annual Allowance from the previous three tax years, to reduce or remove a tax charge on the payment above the Annual Allowance limit.
Please Note: Since 6 April 2016 the annual allowance, for higher income earners, has been tapered (reduced).
If you have a total taxable income in excess of £110,000 (this is known as Threshold Income), your annual allowance will be reduced by £1 for every £2 of ‘Adjusted income’ you have between £150,000 and £210,000. This means the annual allowance can be reduced by up to £30,000 – from £40,000 to a minimum of £10,000.
In addition: If you’ve taken certain types of pension benefits, you’ll have a reduced Money Purchase Annual Allowance (MPAA) of £4,000. Your overall annual allowance will still be £40,000, but your annual allowance for all money purchase plans (such as a Personal Pension Plan) will be £4,000. You’ll have this lower Annual Allowance if you’ve:
This isn’t a full list. You should speak to your financial adviser if you’re unsure what level of Annual Allowance applies to you. If the £4,000 limit applies to you, you won’t be able to carry forward any unused Annual Allowance from previous years.
Important: These pages are provided to give readers an overview of the subjects listed, for a more in-depth definition of “Threshold Income”, “Adjusted Income” “Carry Forward” and for further information around the Tapered Annual Allowance please go to www.gov.uk and search:
If you’re unsure what level of Annual Allowance applies to you or if you want to pay in a large contribution and have unused allowance from previous years, please speak to your financial adviser.
Contributions can be made by way of a single, regular (monthly or annually) and/or a transfer (when you transfer an existing personal pension into another personal pension). Contributions are commonly invested in a range of insured pension funds, although there are other options that can be used. These pension funds are managed by specialist fund managers and include funds that invest in countries around the world (geographical areas) like North America, Europe and Asia for example, which in turn invest in asset types – Property, Fixed Interest and Equities (Stocks and Shares) – and finally into sectors of industry i.e. Technology, Pharmaceuticals and Banking etc. There are also fund managers who specialise in Multi Assets – a combination of stocks and shares, property, fixed interest investments and cash.
It is recommended that when saving for your retirement, you should regularly review how your pension is performing – all investments can go down as well as up – to make sure you are on track to accomplish your saving aims.
Please contact LR Connections on 0345 314 8972 for an appointment to discuss how we could help you.
LR Connections provides expert independent financial advice, accountancy and estate planning services
