UK Pension Allowances
Annual Allowance
Annual pension contributions have a new limit to attracting full tax relief. The limit is the greater of £3600 or 100% of annual salary subject to the annual allowance, which is £245,000 in the 2009/ 2010 tax year. So therefore, any contribution that is made above, the allowance is subject to tax and charges.
Lifetime Allowance
As of writing in 2009, the lifetime allowance before any charges are paid is 1.75 million in pension savings. In 2010/2011, this will rise to 1.8 million. So in essence, you can save this amount before you start attracting additional charges. Additional charges are paid on any excess above these levels, so above 1.75 million this year, and 1.8 million next year, charges are 25% if the pensioner takes his pension as income and 55% if it’s taken as a lump sum. This may seem quite a large disparity but obviously, if you take the pension as income, then because of the level of income, you’ll be paying 40% on the amount taken and so this would grow you up towards the 55% level if talking as a lump sum.