Contribution Levels
Pension Contribution Levels
Current Contribution Limits
Both you and your employer can pay into your pension plan. You'll be eligible for tax relief on any personal contributions up to the greater of 100% of your earnings or £3,600 each year. This limit applies across all pension arrangements that you make contributions to in any one year.
HM Revenue & Customs set an annual allowance. This is how much you (and/or your employer) can pay into your plan that will qualify for tax relief in any one year. For the tax year 2009/10 it's £245,000. Any contributions made above this level will be taxed at 40%. A lifetime allowance is also set. This is the total value of all your tax privileged pension savings. For the tax year 2009/10 it's £1,750,000. A tax charge will be applied to any value above this amount if the value of your retirement benefits exceeds this at the time they are taken.
This information is based on our understanding of current taxation law and HM Revenue & Customs practice, which may change.
How Much Should I Contribute?
This will depend upon several factors. Do you wish to contribute to a target pension amount or do you have a limited budget?
Targetting your required retirement income is by far the better method. With this you take into account any other pensions you have, including future state benefits (see below) in order to find out what your contribution level would require to be. We can help you with this by accessing your existing other pension scheme benefits and using our bespoke software to provide you with a report.
If you decide that you have a budget which determines a specific level of contribution, again we can help you with this. We have access to the whole of the market and can determine for you which providers can or cannot accept your level of contribution.
State Benefits
If you were born after 6 April 1959, the age at which you can take your basic state pension is changing. Between 2024 and 2046 the State Pension age will increase for both men and women. This increase will be gradual, happening over two years every decade. The changes will mean that:
- State Pension age for men and women will increase from 65 to 66 between April 2024 and April 2026
- State Pension age for men and women will increase from 66 to 67 between April 2034 and April 2036
- State Pension age for men and women will increase from 67 to 68 between April 2044 and April 2046
You can find out exactly when you will be able to claim your State Pension by using the State Pension age calculator on The Pension Service website - www.thepensionservice.gov.uk/state-pension/age-calculator.asp
Tax Benefits
In most cases contributions to pensions are paid net of basic rate tax - so for example if you contribute £80 pm to your plan the pension provider will claim an extra £20 pm which makes the contribution £100 pm into the plan, an immediate 20% increase. In the case of a lump sum of £3600 going into your plan, the cost to you would be £2880.
At the other end when you decide to take benefits you are currently allowed to take up to 25% of the fund as a Pension Commencement Lump Sum(PCLS). Any payments from the remaining fund are classed as earned income and will be subject to tax at your personal rate.
All the above is subject to HMRC current legislation which may change in the future.