There’s a lot in the press about the changes to the pension regulations from April next year. But there’s also speculation about an early introduction to some of the tax relief restrictions in the Chancellor’s Autumn Statement, on November 25th.
This could mean there’s now a very short window for higher earners to maximise their pension contributions before the reduction.
Generally speaking, an individual who isn’t already drawing out a pension can pay up to £40k into a pension scheme for a full tax deduction.
But from 6 April 2016 (or possibly 25 November 2015 if the Autumn Statement speculation is correct), anyone with income above £150,000 will see their annual allowance reduced by £1 for every £2 of excess income. This means that if you earn between £150k and £210k, your annual allowance will be reduced on a tapering basis from £40k to £10k, with a £10k fixed allowance for individuals with earnings above £210k.
The definition of “income” in this context is complex – it adds back employer pension contributions and any personal contributions that reduce taxable income (and in some cases any salary sacrifices for the year). The idea is to ensure that the new pension earning limits cannot be avoided by re-routing your income.
The legislation has been pretty well-written, so what can you do? Well we aren’t giving any sort of investment advice here, so please talk to a qualified investment adviser before taking any decision to invest, but you may want to think about the following things:
- If you haven’t made any contributions this year, then consider arranging to make a pension contribution up to your £40k maximum as soon as possible, but certainly before the Autumn Statement on 25 November to secure this year’s allowance.
- If you have made a contribution between 6 April 2015 and 8 July 2015, you can benefit from a one-off “top up” allowance. The top up looks at payments into your pension to 8 July 2015, and gives you a further £40k allowance from 9 July 2015 to 5 April 2016, provided the total for the full year doesn’t exceed £80k.
- If you’ve already contributed up to your maximum for 2015/16, you may have unused allowances from the previous three years you can use – speak to us for more information on this.
If you would like to discuss further, please get in touch with your usual BKL contact who can help with planning your pension contributions. You can also use our enquiry form, or find out more about pensions on our blog.