At the March 2023 Budget event, Jeremy Hunt announced a number of changes to the pension regime including an increase in the amount that can be contributed to a pension each tax year.
For the last (22/23) tax year, the limit on the amount that could be contributed to a pension was £40,000. This is called the annual allowance.
From 6th April 2023 the annual allowance has increased to £60,000.
With a Labour government looking probable by January 2025 at the latest, and in light of comments by Labour politicians that they would reverse the recent pension changes, it makes sense for those who can afford to do so to consider making full use of the enhanced annual pension allowance whilst it is available.
However, it is important to bear in mind that those who have total taxable income in the current (23/24) tax year in excess of £200,000 may not be entitled to the full £60,000 allowance.
The calculation required to establish how much annual allowance is available to someone with taxable income in excess of £200,000 can be complicated, especially where employer pension contributions are involved.
The pension contribution allowance of £60,000 is tapered down to a minimum amount of £10,000 where taxable income ranges between £200,000 and £360,000.
As was previously the case any unused annual allowance can be carried forward for 3 years: this means that any unused annual allowance (at a maximum of £40,000 per tax year) from 20/21, 21/22 and 22/23 can be used in the current 23/24 tax year. In theory this means that someone who didn’t make any contributions to their pension in the previous 3 tax years could contribute up to £180,000 in the current tax year.
If you would like advice on the amount of pension contribution that you could make in the current tax year please get in touch with your usual RG contact.