Pension Changes

/Pension Changes
Pension Changes - free no obligation pension review

Since the introduction of the new pension legislation in 2006 there has been a major change in how we save and – ultimately take – our retirement. The eight former tax regimes have been removed by Pension Simplification and replaced with a single universal regime for tax- privileged pension savings offering more flexibility and choice.
This was further updated on 6th April 2011

Tax Relief

You can qualify for tax relief on the following with pension schemes that are registered with HM Revenue and Customs (HMRC):

  • Pension contributions
  • Investment income and gains
  • Some lump sums paid from scheme

It is important to remember that whilst some pension schemes are registered because of the tax advantages, a pension scheme doesn’t have to be registered.

Tax relief can be given on employer contributions to a non-registered pension scheme. However there is no tax relief on:

  • Employee contributions
  • Investment income and gains

Payments from a non-registered scheme, including lump sums, can be taxed.

You can be given tax relief on personal contributions subject to the greater of:

  • £3,600 per annum or;
  • 10% of net relevant UK earnings (salary, bonuses and benefits)

To receive tax relief on contributions you must be a UK resident or a crown servant (or spouse) serving overseas.

Contributions will be paid net of Basic Rate Income Tax with the relief claimed from the Treasury by the pension’s administration. Higher rate taxpayers can claim further relief through the Self- Assessment process.

Annual Allowance

There is a limit on the amount of pension savings you can build each year which are eligible for tax relief – this is referred to as the annual allowance. Tax is paid on the pension savings which exceed the annual allowance for the year.

The annual allowance forms a limit on the total contributions paid to any registered pension scheme in a scheme year of £50,000 (2013/2014 tax year). This was reduced in 2014 to £40,000. All additional contributions are added to your other income and taxed.

However, unused allowance from up to three years previously can be utilised if annual allowance is exceeded in any given year.

Lifetime Allowance

The maximum amount of benefit an individual can accrue in a registered pension scheme without further subjection to tax is called the lifetime allowance. For personal pensions it is the value of the fund when benefits are taken or at the time of death.

An excess of up to 55% is applied if the total benefits exceed the lifetime allowance at retirement or death.

You can have pension benefits which exceed the lifetime allowance if the value was greater than £1.5 million on 5th April 2006 or if it will surpass the lifetime allowance in the future.

The three forms of protection are:

  • Enhanced (deadline to register 5 April 2009)
  • Primary (deadline to register 5 April 2009)
  • Fixed (deadline to apply 5 April 2012)

Pension Commencement Lump Sum (PCLS)

A tax free cash lump sum which can be taken from most pension funds is known as the Pension Commencement Lump Sum. From the age of 55, you can usually take up to 25% of the fund. Tax free cash can to be taken as a single lump sum or in stages (only available from some providers). The remainder of the fund can be used to provide an income.

It is no longer required to pay income tax once a tax free cash lump sum has been paid.

Age UK Shropshire Telford and Wrekin Logohave great reference information about Pensions on their website click here to go to AGE UK’s pensions webpage.

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