Banner

Pension annual allowance reduced

People saving towards their pension could miss out on the tax relief due to confusion around the new pensions tapered annual allowance, according to the Alliance Trust Savings.

From 6 April 2016, people with adjusted income over £150,000 will see their annual allowance reduced by £1 for every £2 of excess income, subject to a maximum reduction of £30,000.

People with adjusted income of £210,000 or more will have their annual allowance reduced down to the minimum of £10,000 for that tax year.

Additional rate taxpayers affected by the tapered allowance will be able to carry forward any unused allowance from the previous 3 years to increase their tax relief.

For example, an individual earning £210,000 or more making a contribution of £8,000 will benefit from a £2,000 basic rate tax relief, giving a gross payment into their pension of £10,000.

This will include a further £2,500 tax relief through self-assessment as their top rate of income tax is 45%.

Brian Davidson, senior pensions proposition manager at Alliance Trust Savings, said:

“The tax rules around pensions can be complex and with so much radical change to pensions over the last few years, some savers could easily miss out on tax relief in the new tax year. When the unclaimed tax relief could be as high as £58,500, it can make a substantial difference to retirement savings.

“When people realise that they are affected by the tapered annual allowance they could be forgiven for assuming that the carry forward rules will not apply which could be a costly error.”

Talk to us today to discuss your retirement planning.