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10th January 2016
Pensions - Act Now!

There have been some really positive changes to pensions over the last few years, making them more attractive to savers with increased flexibilities as to how you can take your benefits, and to the death benefits available to your beneficiaries. The maximum amount you can pay into pensions is set by a combination of the annual allowance (this is currently £40,000 per annum) and your remuneration.  Depending upon your remuneration, or if you control your own company, it may also be possible for you to pay a much larger sum into pensions by carrying forward the unused element of the annual allowance from the previous three years.

Along with these flexibilities, the Government has introduced a system to restrict higher income earners' annual allowance from April 2016. This is a complicated system which is based on two measures: one for gross income from all sources (including investment and property income and employer pension contributions) called Adjusted Income, and one based on Threshold Income (broadly defined as gross income from all sources excluding employer pension contributions minus the gross amount of a personal pension contribution).

If your Adjusted Income is over £150,000, for every £2 over you will lose £1 of your annual allowance until you reach the minimum allowance of £10,000. By way of example: when gross income reaches £210,000, your £40,000 allowance would be reduced by £30,000. This may severely restrict your ability to make pension contributions in the future, which is not desirable as pensions are now one of the most flexible and tax-efficient arrangements available. It is possible to have an Adjusted Income in excess of the £150,000 limit and retain the full allowance; but your Threshold Income would need to be lower than £110,000.

As you will appreciate, this is a complicated area, but there are several key points to note:

  • If you are a higher earner, you should review your pension funding NOW to see if you should  make a contribution before the end of the tax year. You can still benefit from carrying forward unused relief from previous years; but as time passes, you will lose this benefit.
  • Post April, if you are paying regular personal or employer contributions and then receive unexpected income from investments or perhaps a dividend from your company, you could breach the limits, creating a tax charge; so plan your pension contribution strategy for several years in advance.
  • Finally, it is worth noting that higher earners who are members of defined benefit (final salary) schemes are also affected by these rules; and if your Adjusted Income is over £150,000, only a modest increase in your pension entitlements could create a tax charge.


If you are unsure of your situation and would like some professional advice, please contact your financial advisor.