Changes to pension tax relief are coming in April next year.

We discussed pension tax relief ahead of the emergency Budget in July, but it seems that the government is planning to adjust the Annual Allowance for those paying into pensions. The “Annual Allowance” is the overall maximum you or your employer can pay into your pension each tax year in total. You can also carry forward any unused amount from the past three tax years into the current year.

Limits Are Changing

The Annual Allowance is currently £40,000 (except where you have already taken a pension under the new flexible drawdown rules). The limits are changing from April next year for high earners (if your income plus any employer pension contributions exceeds £150,000). Your Annual Allowance is reduced by 50p for every £1 you are over £150,000 down to a minimum of £10,000.

Income Dependent

As mentioned, the current maximum is £40,000 regardless of your income, but from next year it will be £10,000 - £40,000 depending on how much you earn. The following table shows several examples:

  
    Your Income (plus employer pension contributions)
    Annual
Allowance
  
    £150,000 or less
    £40,000
  
    £160,000
    £35,000
  
    £170,000
    £30,000
  
    £180,000
    £25,000
  
    £190,000
    £20,000
  
    £200,000
    £15,000
  
    £210,000 or more
    £10,000

Use It or Lose It

As the Annual Allowance will be reduced from next year onwards, it’s certainly worth considering using your allowance sooner rather than later. We can help you to arrange a pension to make the most of your savings.

Although you can carry forward from the last three tax years, the reduction for high earners means that the overall maximum could reduce from £180,000 down to £40,000 in four years’ time if your earnings are over than £210,000. The following table shows this:

  
    Tax Year
    Overall
maximum minus contributions already made
  

    2015/16
    £180,000
(£40,000 plus £140,000 carry forward)
  

    2016/17
    £140,000
(£10,000 plus £130,000 carry forward)
  

    2017/18
    £110,000
(£10,000 plus £100,000 carry forward)
  

    2018/19
    £70,000
(£10,000 plus £60,000 carry forward)
  

    2019/20 onwards
    £40,000
(£10,000 plus £30,000 carry forward)
  