New pension contribution rules
- Wednesday, May 10, 2017
The amount that can be saved in a pension tax free each year – the annual allowance – has been set at £40,000 since April 2014.
After the budget on 8th July there will be what is called a post-alignment input period between 9th July 2015 to 5th April 2016 with an annual allowance of £40,000.
After 6th April 2016 there will be further implications with those whose income is in excess of £150,000. For this calculation you also need to include the value of any pension contributions you make, any contributions made by your employers, and the increase in value of any final salary scheme over the tax year. This is called adjusted income.
For every £2 of adjusted income you have over £150,000, your annual allowance will be reduced by £1. The maximum reduction is £30,000 leaving an annual allowance £10,000. So once your income is over £210,000, there is no further reduction.
If you have unused allowances from earlier years, these can be carried forward in the usual way and added to your tapered annual allowance.
If your taxable income – after pension contributions and other reliefs – is £110,000 or less, then these rules will not apply.
Phil JohnsonIndependent Financial Adviser
Phil is an independent financial adviser and leads the pension’s team.