The Annual Allowance is the amount you can pay into a pension fund each year and get tax relief. From 6 April 2016, the Annual Allowance will be tapered from £40,000 for those with earnings of £150,000 or less down to £10,000 for those with income of £210,000 or more.
For this purpose, income isn’t just comprised of someone’s salary. It is ‘adjusted’ to ensure it includes personal and employer pension contributions or any other income including savings, bonuses or even an individual’s buy-to-let property rental – taking many more people into a higher earnings bracket. The annual allowance will reduce by £1 for each £2 of adjusted income above £150,000 until it reaches £10,000.
If appropriate, some people if they act now could reduce their tax liability by carrying forward any leftover pension allowance from previous years or taking advantage of the transitional Pension Input Period (PIP) which will provide the opportunity of making a total payment of up to £80,000 into their pension pot this year.
The lifetime allowance will be cut from £1.25 million to £1 million from 6 April 2016 – the maximum amount people can build up in their pension pot during their lives. This is the third reduction in four years, leaving the allowance at less than half the level originally intended, when it was to be inflation-linked from 2011/12 onwards.
The lifetime allowance reduction means you need to plan carefully. After April 2016, anyone who breaks through the £1million threshold may be liable to 55% tax on any amount over the limit if the excess is taken as a lump sum. If any of the excess is instead taken as income, the tax charge is 25%, although the income itself will still be subject to Income Tax at the recipient’s marginal rate.
Do you have the right retirement plans in place?
If you’re reaching retirement and need to make sure you have the right plans in place, the countdown is on. To review your situation, please contact Admiral Wealth Management on 01472 357035 or email firstname.lastname@example.org – we look forward to hearing from you.
A PENSION IS A LONG-TERM INVESTMENT. THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.
YOUR PENSION INCOME COULD ALSO BE AFFECTED BY INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS. THE TAX IMPLICATIONS OF PENSION WITHDRAWALS WILL BE BASED ON YOUR INDIVIDUAL CIRCUMSTANCES, TAX LEGISLATION AND REGULATION, WHICH ARE SUBJECT TO CHANGE IN THE FUTURE.