Pension contributions

There are many opportunities for pension planning but the rules can be complicated and there have been significant changes recently so do check the position before making any decisions.

The rules currently include a single lifetime limit on the amount of pension saving that can benefit from tax relief. From 6 April 2014 this limit is set as £1.25 million as well as an annual limit of £40,000 on the maximum level of pension contributions. The annual limit includes employer pension contributions as well as contributions by the individual. Any contributions in excess of the annual limit are taxable on the individual.

Tax relief is available on pension contributions at the taxpayer's marginal rate of tax. Therefore a higher rate taxpayer can pay £100 into a pension scheme at a cost of only £60. An additional rate taxpayer can pay £100 in at a cost of only £55. Indeed for some individuals, due to the complexity of the tax system, the effective relief may actually exceed 45%.

As it is widely acknowledged that governments generally are unable to provide adequate levels of retirement pensions, it is more important than ever to provide for a secure old age.

All individuals, including children, can obtain tax relief on personal pension contributions of £3,600 (gross) annually without any reference to earnings. Higher amounts may be paid based on net relevant earnings. There is no facility to carry contributions back to the previous tax year.

Directors of family companies should, as an alternative, consider the advantages of setting up a company pension scheme or arrange for the company to make employer pension contributions. If a spouse is employed by the company consider including them in the scheme or arranging for the company to make reasonable contributions on their behalf.

Those with significant pension savings (in excess of £1.25 million) may be able to protect an increased pensions entitlement by utilising individual protection (IP14) which provides an individual who has pension savings of between £1.25 million and £1.5 million as at 5 April 2014, with a personal lifetime allowance based upon the pension savings at that date. Individuals can make further pension contributions although when benefits are taken any pension savings above the individual's personal lifetime allowance will be subject to a charge. Those who have already opted for Fixed Protection, benefit from a higher lifetime allowance but cannot make further pension contributions.

We would be happy to advise you on your pensions position.