Pension contributions – a window of opportunity?
Following recent reforms on how pension benefits can be taken from money purchase pension schemes, further changes were announced in the last Budget which will seek to limit tax relief on pension contributions paid for those with “adjusted income” above £150,000.
The rules come into effect from 6 April 2016 and result in a tapered reduction of the Annual Allowance (currently £40,000) so that it will be reduced by £1 for every £2 of income in excess of £150,000, subject to a minimum of £10,000. What this means is that some high-income earners will face a reduction in the tax efficient pension savings they can make after the end of this current tax year. However, for those that might be inclined to choose “pensions” saving as part of their retirement planning, might the recent changes be a window of opportunity, to maximise pension funding for those likely to be affected now or in the future?
Generally, from 6 April 2016, those with incomes over £210,000 will only get the maximum 45% tax relief on pension contributions limited to just £10,000. For those with incomes between £150,000 and £210,000 the annual allowance tapers between £40,000 down to £10,000.