As you may be aware, there is a maximum amount that can be saved tax-efficiently for retirement each year. This is known as the Annual Allowance and it governs all pension savings including those made by an employer on an employee’s behalf.
The Annual Allowance is currently set at £40,000 (plus a carry forward allowance from previous years) but, from 6 April 2016, it is subject to tapering for high earners.
The definition of a “high earner” is not straightforward but, very broadly, you are probably a “high earner” if you have adjusted income of more than £150,000. Adjusted income is total income plus the value of any employer pension contributions made on your behalf.
If your pension savings exceed the Annual Allowance, a tax charge is payable on the excess.
You may also be subject to a tax charge if the value of your overall pension pot exceeds the Lifetime Allowance. This is the maximum amount that can be saved for retirement over the course of your lifetime, and it fell by £1/4 million on 6 April 2016, to £1 million.
For those of you who have (or may have, on retirement, factoring in future contributions and investment returns) pension savings at or close to this level and who have not previously sought to protect your Lifetime Allowance, you can potentially do so now by claiming Fixed Protection 2016 (FP2016) or Individual Protection 2016 (IP2016). The benefit of claiming protection is that a lesser proportion of pension savings should be exposed to Lifetime Allowance tax charges.
If you think you may be affected by either of the above changes, or if you would like to discuss this subject further, please get in touch with your usual Ryecroft Glenton contact, or Anthony Main on 0191 281 1292.