Tax Relief
Contributions paid by you to a personal pension plan or a
stakeholder pension scheme
are made net of basic rate tax (i.e. 20%). This means that for
every £100 you want to save, you only pay £80. Tax
relief of £20, topping your contribution up to £100, is
then added by HM Revenue & Customs (HMRC).
If you are a higher-rate tax payer (i.e.40%), you may able to
claim additional tax relief. Depending on how much you earn over
the higher rate tax band, any additional tax relief would range
between a further 1% up to a maximum of 20%.
From 6 April 2011, if you are an additional-rate tax payer
(i.e. 50%), you may be able to claim additional tax relief at
your highest rate. Depending on how much you earn over the higher
rate tax band, and your level of contribution, any additional rate
tax relief would range between a further 1% up to a maximum of
30%.
Limits
The maximum amount you can contribute to a personal pension plan
or stakeholder pension scheme, and on which you can receive tax
relief, is 100% of your earnings or £3,600, whichever is
greater. This is capped at the Annual Allowance (see below).
You can pay more than this but there will be no tax relief on
the excess.
Contributions can also be paid by the employer and these count
towards the Annual Allowance.
The Annual Allowance
The Annual Allowance is an annual limit set by HMRC. Contributions paid
in excess of this amount are unlimited but will give rise to a tax
charge on the pension scheme member.
The Annual Allowance for the tax year 2012/13 is £50,000,
inclusive of your own contribution and any other amounts paid into
an approved pension scheme. The rates from 2006 through to
2013 are:
| The Annual Allowance: 2006/07 to
2012/13 |
| Tax Year |
Annual Allowance |
| 2006/07 |
£215,000 |
| 2007/08 |
£225,000 |
| 2008/09 |
£235,000 |
| 2009/10 |
£245,000 |
| 2010/11 |
£255,000 |
| 2011/12 & 2012/13 |
£50,000 |
Contributions in excess of the Annual Allowance can be made but
will be subject to a tax charge at the individual's marginal
tax rate.
New Annual Allowance Rules From 6 April 2011
We have produced three factsheets to help you understand this
change and it's implications. Click here to visit our publications page and
view the factsheets.
Whilst we endeavour to do our best to help all our customers, we
are a small organisation and do not have the capacity to undertake
the checking of individual calculations. Annual Allowance
calculations are a complex area of law on which individual advice
should be sought.
HMRC has also published a guide and several examples on the
new rules here:
http://www.hmrc.gov.uk/pensionschemes/annual-allowance/index.htm
Q & A's
Yes, the old rules which prohibited this unless you earned less
than £30,000 p.a., have been scrapped. You can now have
contributions paid into as many schemes as you want.
Any payments you make are totaled over all schemes to be
measured against your total earnings. All contributions, yours and
employers, are totaled and measured against the Annual Allowance
(£50,000 in the tax year 2012/13).
Your pension earned under the scheme at the end of the year is
calculated and measured against that which applied at the beginning
of the year. The difference in pension is multiplied by 16 and this
is taken as the value of the contributions paid into that scheme in
that year. The member's own contributions are ignored in the
calculations. However, money purchase AVCs payments are counted as
additional payments.
The amount of the pension earned at the beginning of the year is
increased by a factor to allow for normal earnings growth. This
factor is the greater of 5%, the increase in the RPI, and an amount
prescribed by regulation.
Yes. From 6 April 2011 you will be able to bring forward
any unused Annual Allowance, up to an overall maximum of
£50,000 from three earlier tax years.
Please see our factsheet 'spotlight on changes to the
annual allowance' which explains this.
Remember to check whether your pension scheme or provider allows
you to pay one-off or increased contributions.
No, such contributions are ignored.
No. Prior to the 6th of April 2011 it was
possible to pay unrestricted contributions into a pension plan in
the year in which you took your benefits as no Annual Allowance
test would apply in the final year. From the 6th of
April 2011 there will be no longer be a blanket exemption from the
Annual Allowance test in the year benefits are vested. There will
only be exemptions in the cases of serious ill health retirement
and on the death of a pension scheme member. HMRC has published
some notes and examples here:
http://www.hmrc.gov.uk/pensionschemes/annual-allowance/guide.htm#3
Yes, you can continue to contribute for up to 5 years.
Yes, but contributions made to personal pension plans to fund
term assurance policies on or after 6 April 2007 do not attract tax
relief unless the application form was received by the insurer
before 16 December 2006 and the policy was taken out as part of the
pension scheme before 6 April 2007.
If contributions do attract tax relief, entitlement to relief
will cease if the contribution is varied outside of its original
terms.
Whether you are in a company or individual pension scheme, any
pension contributions made from your salary should be paid to the
scheme provider within 19 days of the end of the month in which the
deduction was made. If therefore, for example, your contributions
were deducted from your salary on 25th January, they must be passed
to the pensions' provider by 19th February. With regard to employer
contributions, the employer must produce a schedule each year which
shows what contributions will be paid and the dates by which they
will be paid.
