Managing your Pension Annual Allowance

By Alan Walsh, financial services manager, Financial Affairs

The Annual Allowance limits the amount of pension contributions that can receive tax relief for any individual in each tax year.

Both personal contributions and those paid by an employer are subject to the Annual Allowance, although if a tax charge arises from exceeding it this will always be payable by the individual receiving the contribution.

There are a number of complex planning issues to consider in relation to the Annual Allowance.

Contributions in excess of the current allowance (£40,000) can be paid if you have unused allowances from previous years. This is known as Carry Forward. However, individuals with income over £110,000 may be subject to tapering of the Annual Allowance, depending on their circumstances.

In addition, if certain types of benefit have be drawn from other pension arrangements then the Money Purchase Annual Allowance may have been triggered, reducing the potential input.

For Defined Benefit Pension Scheme Members (also known as Final Salary Schemes) it can be difficult to even calculate what the pension input amounts to each year before an Annual Allowance test is even applied.

There are circumstances where it may be attractive for an individual to exceed the Annual Allowance and pay the Annual Allowance Tax Charge, which simply seeks to reclaim the tax relief received on the contribution.

Our Financial Planning team helps individuals and businesses maximise tax planning opportunities. Ask us about our pension planning services which use cash flow models to provide realistic projections of how your retirement might look.