Pension planning and allowances

Whilst pensions are a brilliant way to save towards your financial future, they also come with great complexity, particularly when it comes to the Annual Allowance and Lifetime Allowance.

Annual Allowance

This is the amount that you can pay into a pension each tax year, whilst still benefitting from tax relief.

Currently standing at £40,000 per year, there is much nuance to this, with current and previous years’ income and contributions all factoring into the allowance ultimately available.

Lifetime Allowance

This is the total amount of pension savings you can accumulate without facing a tax charge.

Currently frozen at £1,073,100, it also has a number of intricacies.

The Lifetime Allowance calculation is complicated, with the method differing for Defined Benefit pensions and Defined Contribution pensions.

Some people may also have Lifetime Allowance protection in place, giving them an extended allowance.

Annual and Lifetime Allowance Planning

Breaching either allowance can result in a tax charge. Through working closely with our clients, we can help to ensure they stay within their Annual Allowance.

Whilst accumulating a vast amount of pension savings (and ultimately paying the Lifetime Allowance tax charge) isn’t necessarily a bad thing, our cash flow planning software can help forecast a potential future charge.

Whilst we can look at ways to mitigate this charge, this type of planning is very bespoke, and there are many considerations as to whether to continue contributing to a pension or whether instead to look at other tax-efficient alternatives.

We can also help explain the different ways this potential charge can be paid.