In the last Budget Chancellor George Osborne announced the reduction in the Annual Allowance for those with ‘adjusted’ taxable incomes of over £150,000. This definition of income adds back any pension contributions made by an employer.
The current Annual Allowance is £40,000 for 2015/16. From 6 April 2016, individuals who have taxable income of more than £150,000 will have their annual allowance restricted. The allowance will be reduced by £1 for every £2 of income in excess of the £150,000 limit.
This will continue until the Annual Allowance has been reduced by £30,000 to the minimum of £10,000. Therefore, anyone with an income of £210,000 or more will have an annual allowance of £10,000. Anyone earning between £150,000 and £210,000 will have a “tapered” allowance, at a level between £40,000 and £10,000.
Potentially you could be caught by the restriction which could lead to an unwanted Annual Allowance Charge. You may therefore wish to review your pension contributions going forwards – including employer contributions if relevant – to mitigate any potential charge. Additionally, you may wish to consider making a further contribution to your pension now to maximise the tax relief available prior to the rule change.
You should also be aware that there are various rumours in the Financial Press that the Chancellor may restrict higher and/or additional rate pension relief further in the forthcoming budget on 16 March 2016 and you may want to act accordingly.
If you would like any assistance in calculating the maximum pension contribution you could make now under the existing rules, please contact us on 0845 177 5500 or using our on-line form..
Please note that we are unable to comment on investment aspects, although our Pensions & Investments partners will be please to do so.