Since April 6th, new government legislation now restricts the annual allowance for pension’s savings. The legislation limits the amount that a higher earner can save within their pension every year, without being taxed.
For example, if your total taxable income plus your employer’s pension contribution is less than £150,000 a year, you are able to add the standard £40,000 to your pension. However, if you have flexibly* accessed your pension, since April 2015, this is not possible.
These restrictions are more likely to affect higher earners, whose total taxable income plus employer’s pension contribution is more than £150,000. For earners within this bracket, their tax free annual allowance will reduce by £1 for every £2 of taxable income above £150,000.
The table below further explains how the new legislation will affect the annual allowance for high earners:
|Total taxable income plus employer’s pension contribution
||Annual allowance for pension savings
|£150,000 or less
|£210,000 or more
Although it is the pension holder’s responsibility to ensure they do not contribute more than their new annual allowance, it is important that this information is communicated clearly by employers.
At Lark Employee Benefits, we’re already speaking to our clients and reviewing their policies and, where necessary, restructuring the way they pay into the pension scheme of their higher earning employees.
Anyone who exceeds the annual allowance will be subject to an annual allowance tax charge so it is important that employers and their high earning employees are fully aware of these new rules, and act accordingly.
For further information on how the annual allowance restrictions may affect you or your employees, please feel free to get in touch.
*If income has been drawn from a Flexi-Access Drawdown pot or benefits drawn via Uncrystallised Fund Pension Lump Sum since 6 April 2015, and then the Money Purchase Annual Allowance (‘MPAA’) of £10,000 per year will apply.