Sevenoaks Workstyle - Sevenoaks

Section A

Limits

Annual Allowance

The Annual Allowance is the maximum amount of pension savings that can build up in a tax year and benefit from tax relief. From the 2016/17 tax year the Annual Allowance is £40,000 for most members, although members with taxable income of £110,000 or more , or members who have already accessed some of their pension savings, may have a lower Annual Allowance.

If you exceed the allowance

If you exceed the Annual Allowance in a year, you won't receive tax relief on any contributions you paid that exceed the limit and you will be faced with an Annual Allowance charge.

The Annual Allowance charge will be added to the rest of your taxable income for the tax year in question, when determining your tax liability. Alternatively, if the Annual Allowance charge is more than £2,000, you can ask your pension scheme to pay the charge from your benefits. This means your pension scheme benefits would be reduced.

Lifetime Allowance

The Lifetime Allowance was introduced in 2006 at a level of £1.5 million. It then increased each year to 2010,when it reached a level of £1.8 million. Since 2010, there have been a number of pension reforms which have led to the Lifetime Allowance being reduced. Its current level in the 2017/18 tax year is £1m having been reduced from £1.25 million in 2016.

Whilst most people aren’t affected by the Lifetime Allowance, you should take action if the value of your pension benefits is approaching, or above, the Lifetime Allowance. For more information on how to apply for protection from reductions in the Lifetime Allowance, please visit the relevant section of the HMRC website. As pensions are normally a long term commitment, what might appear modest today could exceed the Lifetime Allowance by the time you want to take your benefits. It may be necessary to take your pension early or stop contributing to the Scheme, even though you have not retired, to avoid your benefits exceeding the Lifetime Allowance. The test for the Lifetime Allowance is done each time you access a pension benefit.