What’s The Annual Allowance For Pension Contributions?

What is annual allowance for allowance contributions?

Total contributions from the individual and an employer qualifying for tax breaks are limited by the once a year allowance, that the previous government had set at £255,000 until April 2016. The coalition govt. however announced in October 2010 that the yearly allowance will be reduced to £50,000 with effect from April 2011. It will be fixed at that level till April 2016 and after that date will be index-linked. The government further announced that it will be possible to carry onward any unused annual payment allowance for a period of three years to negate against contributions above the once a year allowance in a single year.

The once a year allowance applies to all contributions made to registered allowance schemes in the tax year and contributions above the allowance will be granted to an annual allowance charge.

Prior to 6 April 2011, the annual allowance would not apply to an allowance arrangement in the year of death or to any arrangement in a tax year when benefits were taken (crystallised) in full from that arrangement. This relaxation forestalled the yearly allowance from applying on early or ill health retirement. It also meant that subject to the then restrictions on higher/extra rate relief, all allowance funding could be deferred till the year of retirement. Nevertheless from April 2011, the once a year allowance will apply in the year of taking benefits, except on death or on serious bad health. There are no exemptions for pre retirement or redundancy.

Making lump sum pension contributions is a complicated area of money planning and if this is not finished correctly then tax charges may be levied to your plan. It is generally a prudent plan to seek expert finance advice from a reputable fiscal advice firm. This set of circumstances is probably one of the very few times when the to your question are Pension Lump Sums taxable and the answer may be yes! Hence the continuing need to take advice from your confidant.

Early Pension and Early Retirement are key issues looked at by My UK Pension Plan, an online service which connects individuals with Financial Advisers