There are limits to how much can be invested in a pension scheme before a tax charge is payable. To qualify for personal tax relief the pension contribution has to be paid by you.

Tax relief for pension contributions may be restricted by reference to net relevant earnings and the annual allowance.

The annual allowance is currently £40,000 per year for those with income of less than £200,000. The £40,000 is the gross contribution made by you and your employer. Provided you have been a member of a pension fund in the past, it may be possible to carry forward any unused allowance from the previous 3 years.

Complex rules apply to individuals with ‘threshold income’ above £200,000 and adjusted income over £240,000, so seeking pension advice is important if you are a high earner.

There is a lifetime allowance which is currently £1,073,100 (correct as of January 2023). Funds which are over this value when benefits are accessed can be liable to a tax charge.

When you contribute as an individual to your pension, the Government provides basic rate relief at source. The basic rate relief is then paid directly into your pension pot. If you are a higher rate or additional rate taxpayer you have to claim the additional tax relief from HMRC. Pension relief is paid on the highest rate of income tax you pay, so of you are a:

• Basic-rate taxpayer – you get 20% tax relief
• Higher-rate taxpayer – you get 40% pension relief
• Additional-rate taxpayer – you get 45% pension tax relief

• If you are over 55, you may be able to start taking pension drawdown, even if you are still working. However, defined benefit schemes are likely to have restrictions and possibly costs if the pension is taken early.
• When are you planning to retire and what’s your ideal income?
• Should you increase your pension contributions?
• When considering if you have exceeded the annual allowance have you reviewed both your employee and employer pension contributions?
• Have you fully considered the potential inheritance tax benefits of maximising your pension fund?

We are not regulated under the Financial Services and Markets Act 2000 to provide investment services to our clients but we have a wide range of professional contacts to ensure you have suitable independent advice. If you do not have your own nominated financial adviser, our aim is to provide you with impartial and tax efficient advice.